Australia's Tax Reform Agenda: Efficiency, Equity, and Simplification

Australia's tax reform agenda is centered around making the tax system more efficient, equitable, and simple, with a focus on productivity growth. Four key principles have guided tax reform over the decades: efficiency, equity, simplicity, and sustainability. Experts believe that switching from inefficient taxes to more efficient ones, such as broadening the base of the tax system and reducing the rate, can give a productivity dividend. A land tax is seen as a more efficient alternative to stamp duties on the purchase of homes.

Key Takeaways:

• The GST is a more efficient tax than personal income taxes and company taxes, with a marginal excess burden of 30c and 13c, respectively.
• Raising the rate of the GST would impose an additional 30c cost to the economy for every dollar raised, while broadening it would come with a marginal excess burden of 13c.
• Stamp duties stand out as exceptionally economically damaging taxes, with an economic damage of 74c per dollar of revenue raised.
• A broad land tax, equivalent to municipal rates, is a very efficient tax, with a 4c offset in extra economic welfare per dollar of revenue raised.
• Efforts to transition to a more stable and less distortionary land tax have proved difficult, and any commonwealth-led discussion on tax reform must include the states and territories.
• Increasing the GST rate or broadening its base to include excluded items could have the added benefit of simplifying the system.
• Using increased GST revenue to pay for income tax relief or to eliminate inefficient taxes such as stamp duties is theoretically possible but may prove difficult due to cash-strapped states.
• Federal mining "rent" taxes are more efficient than state-level mining royalties schemes, which are lucrative for governments but distort production.
• Australia's tax system is weighted too heavily to taxing income and not wealth, encouraging people to salt away wealth in unproductive things.
• Labor is exploring ways to reduce generous tax concessions for Australians with more than $3m in superannuation, but trimming tax breaks for residential property investors and introducing inheritance taxes remains off the agenda.

Statistics:

• The GST's marginal excess burden is 30c per dollar of revenue raised.
• Broadening the GST would come with a marginal excess burden of 13c per dollar of revenue raised.
• Personal income taxes impose an additional 48c cost to the economy for every dollar raised.
• Company taxes have a marginal excess burden of 65c per dollar of revenue raised.
• Stamp duties have an economic damage of 74c per dollar of revenue raised.
• A broad land tax equivalent to municipal rates would have a 4c offset in extra economic welfare per dollar of revenue raised.
• Federal mining "rent" taxes have an offsetting 8c for the economy for every dollar raised.

Sources:

• Stephen Bartos, Professor of Economics at the University of Canberra and former Deputy Secretary at the Department of Finance
• Chris Murphy, Honorary Senior Lecturer at the Australian National University
• Danielle Wood, Chair of the Productivity Commission
• Luke Yeaman, Chief Economist at the Commonwealth Bank and former Treasury Deputy Secretary
• Patrick Commins, Guardian Australia's Economics Editor