Several tax policy initiatives have sprung out of federal politics in the past week, ranging from the government's new levy on bank deposits and steep rise in tobacco excise to the opposition's cut in company tax.
It is hard to discern any reform strategy at work in any of this. The government is scraping the barrel for more revenue, while the opposition's company tax cut is offset, in the case of larger companies, by an equivalent impost to pay for a Rolls Royce paid maternity leave scheme.
None of this amounts to reform. Tax reform has two dimensions: reshuffling the pack to replace more harmful taxes with less harmful ones (all taxes being harmful to one degree or another); and the effect on overall tax revenue at the point of implementation and over time.
Reform packages can be designed to raise more, less or the same amount of revenue. There are people inside and outside government with eyes trained on the possibilities for revenue-increasing reforms. The GST is often mentioned in this connection, although it is not (yet) part of the plans of government or opposition.
But revenue-increasing reform is not the kind of reform that will do the most to spur workforce participation, investment, productivity and potential economic growth over the long haul. For that we need both a reshuffling in favour of less harmful taxes and a reduction in the overall burden.
The key to reconciling tax-lowering reform with a return to balanced or surplus budgets is stronger discipline over government expenditure.
The CIS' TARGET30 campaign aims to lower government spending over 10 years from 35% of GDP to 30%. The latest TARGET30 report – Shrink Taxation by Shrinking Government! – quantifies the scope this shrinkage in the relative size of government would create for net tax reduction. It is realistic to expect that after 10 years not only would budgets be in surplus, but also that taxes could be $37 billion a year lower (in 2011-12 terms).
This figure does not rely on an increase or broadening of the GST. Rather, $37 billion of tax relief is the reward from 10 years of tighter control of government spending. A bigger GST could also be thrown into the mix to enlarge the sum available for reducing other taxes, but this should only be done in exchange for eliminating several inefficient taxes.
Robert Carling is a Senior Fellow at The Centre for Independent Studies and author of Shrink Taxation by Shrinking Government!, released this week.
Home > Commentary > Opinion > Tax reform with smaller government
Tax reform with smaller government
It is hard to discern any reform strategy at work in any of this. The government is scraping the barrel for more revenue, while the opposition's company tax cut is offset, in the case of larger companies, by an equivalent impost to pay for a Rolls Royce paid maternity leave scheme.
None of this amounts to reform. Tax reform has two dimensions: reshuffling the pack to replace more harmful taxes with less harmful ones (all taxes being harmful to one degree or another); and the effect on overall tax revenue at the point of implementation and over time.
Reform packages can be designed to raise more, less or the same amount of revenue. There are people inside and outside government with eyes trained on the possibilities for revenue-increasing reforms. The GST is often mentioned in this connection, although it is not (yet) part of the plans of government or opposition.
But revenue-increasing reform is not the kind of reform that will do the most to spur workforce participation, investment, productivity and potential economic growth over the long haul. For that we need both a reshuffling in favour of less harmful taxes and a reduction in the overall burden.
The key to reconciling tax-lowering reform with a return to balanced or surplus budgets is stronger discipline over government expenditure.
The CIS' TARGET30 campaign aims to lower government spending over 10 years from 35% of GDP to 30%. The latest TARGET30 report – Shrink Taxation by Shrinking Government! – quantifies the scope this shrinkage in the relative size of government would create for net tax reduction. It is realistic to expect that after 10 years not only would budgets be in surplus, but also that taxes could be $37 billion a year lower (in 2011-12 terms).
This figure does not rely on an increase or broadening of the GST. Rather, $37 billion of tax relief is the reward from 10 years of tighter control of government spending. A bigger GST could also be thrown into the mix to enlarge the sum available for reducing other taxes, but this should only be done in exchange for eliminating several inefficient taxes.
Robert Carling is a Senior Fellow at The Centre for Independent Studies and author of Shrink Taxation by Shrinking Government!, released this week.
• Subscribe
Subscribe now and stay in the loop with our giving appeals, event alerts, newsletters and research updates.
We are always pleased to hear from you. If you have any questions or feedback, please contact us here: