A simple plan - and we can afford it, too
By Malcolm Turnbull
August 28, 2005
Australia's tax system needs further reform to make it simpler, more efficient and more competitive.
Our top marginal rates are too high, although the last budget's reforms mean they now cut in at higher levels of income than they previously did.
Most of us would agree that we should have a tax system that is less complex, with rates that are lower. But how do we finance reductions in rates? Where is the money coming from?
The answer is that there is a virtuous circle. A simpler tax system will have fewer concessions. This means that the tax base, the income that is available for taxation, will be broader. By broadening the base, we are able to raise the same amount of money with a lower rate. Broadening the base allows you to lower the rate, and vice versa. Simplicity and efficiency go hand in hand.
And on Monday it was Bill's turn:
Union chief joins call for big tax cuts
By Jason Koutsoukis
and Josh Gordon
August 29, 2005
ONE of Australia's most influential union leaders has called for the top income tax rate to be slashed to 30 cents in the dollar as the push for widespread tax reform gathers pace.
Australian Workers Union national secretary Bill Shorten, who is widely tipped to enter Parliament at the next election, said all rates needed to be simplified as part of a radical overhaul of the tax system.
He urged Labor to embrace genuine reform to try to wrong-foot the Howard Government.
It seems the young turks on both sides of politics have decided that tax reform is way for to make a name for oneself. Not content with fighting the battle inside the party, they've taken it to the public, writing op-ed pieces, briefing journalists, and doing their best to be self-styled saviours of the Australian economy.
As is so typical in debates over tax reform, the first thing on the agenda is the degree to which income tax can be reduced. So far no problem - income tax in Australia is to high, particularly given international comparisons and the company tax rate. But the proposals are not about tax cuts - they are about tax reform, and both proposals are intended to be revenue neutral. Therefore the $64,000 question (to be taxed at 20% according to Bill) is just how the base will be broadened in order to ensure its revenue neutrality. Whether it's through clamping down on trusts, income splitting, fringe benifits tax, family tax benefit or tinkering with the GST excemptions (extremely unlikely since this would require the approval of the states), that part is going to be the hard sell.
Perhaps that relates to the Shorten/Turnbull/anyone else who wants to try their hand approach: the "no dessert unless you eat your greens" kitchen table strategy. Tempt people with the sweetness of the banana fritter of income tax rate reduction, and then later on focus on the necessity of bok choy and turnips exemption reduction.
Australia does need tax reform - a separate debate from a tax reduction. Hopefully we can soon get to the substance of a debate on the issue rather than having a bidding war on income tax rates. If Costello and Swan are reluctant to give it a go, then maybe we'll need to wait a few years for Turnbull and Shorten.