The current ramshackle tax system is the product of compromises, tinkering, political pragmatism and budget ad hoccery over decades.
There isn’t the luxury of designing a new system from scratch, but set-piece reviews – such as that publicly launched this week with the release of the Abbott government’s tax discussion paper – provide the opportunity to stand back, take in the big picture and rearrange its elements for better effect.
Such big picture reviews have occurred before – once a decade starting in the 1970s – and while they have produced some reforms in the true meaning of that over-used word, they have also left a lot of unfinished business or, worse still, gone off in wrong directions.
The patchy record of big picture tax reviews serves to illustrate the obstacles to reform. This may be no bad thing if it helps to contain revenue and the size of government. It is better to have a ramshackle tax system generating revenue of 27% of GDP (as the current system does) than a super-efficient system generating (say) 35% of GDP.
The issues in tax reform have been extremely well rehearsed by past reviews and there is not much in this week’s discussion paper that hasn’t been said before. One key difference with this review, however, is that it is being held at a time of entrenched budget deficits. This presents the risk that the review process will be hijacked by those who take growing government spending as a given and want taxes to be higher. They want a more efficient system not just because of the efficiency gains but because it will generate more revenue more easily than a ramshackle system.
The government rightly says it want lower taxes to provide a supply-side boost to economic growth, but this will be empty rhetoric unless the growth of spending can be pegged back. The ideal would be a super-efficient tax system generating sufficient revenue to finance a smaller government , as advocated in CIS’s TARGET30 campaign (link to my 2013 Target 30 paper ‘Shrink Taxation by Shrinking Government’).
Robert Carling is a Research Fellow at the Centre for Independent Studies
Home > Commentary > Opinion > Opening the tax reform can of worms
Opening the tax reform can of worms
There isn’t the luxury of designing a new system from scratch, but set-piece reviews – such as that publicly launched this week with the release of the Abbott government’s tax discussion paper – provide the opportunity to stand back, take in the big picture and rearrange its elements for better effect.
Such big picture reviews have occurred before – once a decade starting in the 1970s – and while they have produced some reforms in the true meaning of that over-used word, they have also left a lot of unfinished business or, worse still, gone off in wrong directions.
The patchy record of big picture tax reviews serves to illustrate the obstacles to reform. This may be no bad thing if it helps to contain revenue and the size of government. It is better to have a ramshackle tax system generating revenue of 27% of GDP (as the current system does) than a super-efficient system generating (say) 35% of GDP.
The issues in tax reform have been extremely well rehearsed by past reviews and there is not much in this week’s discussion paper that hasn’t been said before. One key difference with this review, however, is that it is being held at a time of entrenched budget deficits. This presents the risk that the review process will be hijacked by those who take growing government spending as a given and want taxes to be higher. They want a more efficient system not just because of the efficiency gains but because it will generate more revenue more easily than a ramshackle system.
The government rightly says it want lower taxes to provide a supply-side boost to economic growth, but this will be empty rhetoric unless the growth of spending can be pegged back. The ideal would be a super-efficient tax system generating sufficient revenue to finance a smaller government , as advocated in CIS’s TARGET30 campaign (link to my 2013 Target 30 paper ‘Shrink Taxation by Shrinking Government’).
Robert Carling is a Research Fellow at the Centre for Independent Studies
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