The big scary labyrinth at the heart of the tax system
If the people looking after the nation’s bank account can’t estimate what it costs to take wealth with one hand and re-distribute it with the other, we are in trouble.
Millions of Australians interact daily with a system of swings and roundabouts called the Transfer System. It’s a complex network of welfare payments, concessions and benefits that involves all three tiers of government.
Retirees and families with children receive 63 percent of this pie so the changes that are inevitably made around Federal Budget time have a broad impact.
In 2008, then-Treasury head Dr Ken Henry took a deep dive into the Transfer System.
Although he found it accounts for seven percent of GDP and a quarter of all government spending, he was stumped when it came to working out exactly what it cost to run.
That probably won’t change when Treasurer Wayne Swan summons many of the nation’s best and brightest minds to his Tax Forum in Canberra in October.
A discussion paper issued as a thought-starter for the forum poses questions about specific welfare payments and asks whether the transfer system can be made fairer for individuals.
There’s one more question The Tax Institute wants to ask: Can we make the system less complicated and cheaper to run?
It’s one reason we’re staging our own free Great Tax Debate in Sydney tomorrow, a month before the government’s forum. Attendance is open to anyone with an interest in taxation reform and features some high-powered speakers.
Independent MP Rob Oakeshott - who is the reason the government is having its tax forum - is first cab off the rank. Also speaking is Cassandra Goldie, the CEO of welfare peak body ACOSS, so the Transfer System will receive some much-wanted attention.
ACOSS told the Henry review that the Transfer System should be completely re-built. It advocated ongoing separation from the income tax system, with family payments being retained and tax and social security arrangements simplified for older Australians.
While everyone accepts that there’s an administration cost in running our welfare and benefits system, we should ask if we need so many forms of payment. No-one is advocating taking benefits from people who need them. This is about reducing both the number and complexity of transfers.
As Dr Henry pointed out, the people who are the worst off in a complicated system are usually the disadvantaged.
In the words of American academic Professor Michael Graetz: “Simplicity always seems to be the forgotten stepchild of tax policy.” This applies to the administration and collection sides of the equation.
Overly-prescriptive tax laws that chase every cent ultimately produce concessions that are so complex that few take them up. But if we have more transparency in administration and less of the nation’s wealth tied up in an endless Tax-Welfare Churn, we’ll all be better off.
*Robert Jeremenko is Senior Tax Counsel for The Tax Institute, Australia’s leading professional body on taxation.
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