Amid stubborn budget deficits and pressures for more spending, it is time to reform and simplify the tax system to increase economic benefits for Australia, says a new report.
An ideal reform of the tax system will combine restructuring and reducing taxes, but must be accompanied by a reduction in the growth of government spending, finds Shrink Taxation by Shrinking Government! from The Centre for Independent Studies.
'Reducing, reforming and simplifying taxes should be a high priority for the next federal government post-election,' says CIS Senior Fellow Robert Carling.
'High on the list of taxes to be abolished is the minerals resource rent tax – a distorting, complex tax that raises little revenue,' says Mr Carling.
The CIS report also calls for reducing company and personal income tax rates to generate savings of $28 billion a year for Australian taxpayers and businesses.
'The government should also consider increasing the GST, for example, by broadening the base to include food, or increasing the rate to 12.5%, but importantly, only as a trade-off for abolishing less efficient indirect taxes,' says Mr Carling.
The report identifies 20 measures aimed at minimising the economic harm from taxation. High priorities for state tax reform include removing various stamp duties such as duties on insurance and motor vehicles.
'All the states agreed to remove a number of taxes in exchange for receiving GST proceeds, but some states like NSW and South Australia are still lagging on this. Rectifying this situation would provide $400 million in revenue savings,' says Mr Carling.
The report is part of the CIS' TARGET30 campaign to reduce the size of government in Australia to no more than 30% of GDP within 10 years. The report illustrates the kind of tax reform and the scale of tax reduction that could be expected if TARGET30 was to be achieved.
'It is clear that the size of government has become too large, and that is why under the CIS' TARGET30 framework, taxes could ultimately be reduced by the equivalent of $37 billion a year in 2011-12 terms,' says Mr Carling.
|
Top 10 tax reform proposals |
Estimated revenue |
|
Finish removing state taxes agreed under GST reforms |
$400 million |
|
Remove state stamp duties on insurance |
$3.6 billion |
|
Remove state stamp duties on motor vehicles |
$2.3 billion |
|
Remove minerals resource rent tax |
$2.2 billion |
|
Abolish Commonwealth Medicare levy |
$9 billion |
|
Cut company tax rate to 25% |
$8 billion |
|
Cut personal income tax by 15% and merge top two rates into a single rate of 35% |
$20 billion |
|
Institute automatic annual indexation of personal income tax thresholds |
N/A |
|
Increase the GST, but only as a trade-off for |
+$12 billion to $20 billion |
|
Replace state stamp duties on real estate |
$11.5 billion |
Robert Carling is a Senior Fellow at The Centre for Independent Studies. He is available for comment.
Access the report: Shrink Taxation by Shrinking Government!
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