Let’s get rid of the rats in the tax system
The Gillard Government has declared its carbon tax won’t be included in the Federal Budget in May - and that’s not a surprise.
The real shock is why we’re even talking about a carbon tax without a debate about broader taxation reform.
There aren’t many Australians who wouldn’t like to pay less tax, but reforming the system goes way beyond that.
Our country would work a lot better if we had fewer taxes that worked more efficiently to collect even the same amount of money from more of us.
The 2010 Henry Review of the tax system got it right when it said there are 125 taxes across all levels of government in Australia, yet just 10 of them collect 90 per cent of revenue.
Eliminating some of these 115 other “rats and mice” taxes would make the system far simpler and much easier to run.
A tax system is like a finely-tuned timepiece – tamper with one of the mechanisms and the whole lot can seize up.
Imposing a new tax to make people use green energy might be the right thing to do, but all sides of politics need to agree to properly examine the entire mechanism before adding an extra spring.
By world standards, our tax system works well - but that doesn’t mean it will still be fully functional by the time our kids grow up.
By 2050, the number of Australians aged 65-plus will more than double. We will need retirement and hospital systems that can cope, and having a fair and efficient tax system is how we’ll pay the bill.
There are other short-term reasons to have a look at the tax system.
The end of the financial year is three months away and people are starting to think about gathering together their shoebox of receipts and lodging their tax return.
Yet eight in ten of us will pay a tax agent or accountant an average of $300 to do it for us.
That’s almost always claimed as a deduction the following year, which just adds one more complication.
Australians are the second-most tax agent-reliant people in the world (77 per cent) with only the Italians (96 per cent) needing help more.
That’s understandable when you realise that the Income Tax Act that was 126 pages long in 1936 now runs to 7000 pages.
Few politicians are able to explain the details of the tax system - yet they’re the people making the laws that the Australian Tax Office administers to run it.
The Government is already moving towards allowing taxpayers with simple returns to take a standard deduction and file their tax return. It’s one small step in the right direction.
The Government has also been promising a tax summit before the end of June.
Of course a carbon tax should be part of that, along with issues like GST, abolishing inefficient state taxes and simplifying welfare payments.
The clock is ticking on all this and it’s not just about the environment.
Robert Jeremenko is Senior Tax Counsel for The Tax Institute, the body representing Australia’s tax professionals.
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