Attempts to comply with Australia’s tax legislation, spanning more than 10,000 pages, cost $ 50 billion a year and are more than 14 times the amount required to run the Australian tax authority, the Tax Agency has warned.
It requires long-term changes in the tax system, including income tax relief, universal free childcare and an end to property tax relief.
The tax institute, a leading group of tax experts, has released a 287-page report calling for changes, including raising GST rates but lowering income taxes for Aussies.
Andrew Mills, director of tax policy and engineering at the Tax Institute, said ineffective taxes cost even more in lost economic growth.
He added that Henry’s tax assessment 12 years ago estimated that compliance with tax law costs $ 40 billion each year, but since then, greater complexity has been stacked on the tax system for everyone.
“The true cost is probably over $ 50 billion now – over 14 times what it costs to run an ATO,” he said.
“A large part of these costs can be avoided if we solve the systemic problems in our system instead of continuing to fine-tune around the edges. You can put as many band aids as you want on a broken limb, but that does not change the fact that it is broken. We need significant intervention and we need expertise to carry out the right operation. ”
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The wrong kind of tax
Australia is raising too much revenue from income taxes, with both personal and business accounting for 60 per cent of revenue, according to the Tax Institute.
“With a legitimate focus on productivity and jobs, it makes no sense to rely so heavily on taxing personal income. Australia’s aging population also means that when an entire generation prepares to retire, there will be a huge gap in our tax revenue, ”Mr Mills said.
“There are simply not enough younger workers who contribute income tax to the system to support the number of retirees in a sustainable way, unless we look at other income streams.”
These days, its common knowledge in personal finance circles is that diversified income streams put you in a more secure position than relying on a single source of income, he added.
“The same goes for our overall economy – by relying so heavily on a small number of taxes, we raise our financial risk. And when you look at who pays these taxes more closely, it is clear that there is what is called a concentration risk. For example, a very high proportion of our corporation tax is paid by a very small number of companies, ”he said.
“A tendency to back up (mistakenly) perceived as politically secure policy has had a detrimental effect on Australia’s ability to develop sound tax policies and legislation. While it may seem easier in the short term, the real conversation about what the tax reform should happen avoids, and avoids necessary but perhaps harder to sell, changes hurt all Australians. ”
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The IRS has argued that an increase in GST to cover fresh food, health and education could lower income tax rates, while the report also proposed lowering corporate tax rates for large companies to 25 per cent, a 5 per cent drop.
“Without increasing the GST rate from 10 percent, an expansion of the base to include some of the key items currently exempt from GST could increase revenue by $ 21 billion,” the report noted.
It also proposed a scenario where fresh food and health care could be taxed at a lower rate of 5 percent, while the GST would be raised to 12.5 percent, which would result in a potential revenue of $ 25 billion.
“Where all goods that attract GST, including the goods currently exempt, are taxed at 12.5 percent, the revenue increase is $ 40 billion,” the report said.
An increase to GST to 12.5 percent for existing goods alone would raise an additional $ 14 billion, it found.
But if GST were raised or expanded, a “reduction in income tax rates would be needed to compensate low- and middle-income earners,” the report added.
To balance the impact of a higher GST, the government could consider options such as increasing income support payments to these households through direct payments such as family tax benefits, Newstart and retirement pensions, as well as tax breaks, Mr Mills noted.
Property along with superannuation contributes to wealth opportunity, the report notes.
“It is estimated that Australians over the age of 60 will transfer $ 3.5 trillion in wealth over the next two decades,” it said.
“In particular, about 78 percent of the estimated assets transferred will go to about 20 percent of the recipients.”
However, it did not think that the introduction of an inheritance tax would be particularly useful, noting that it would also only be charged for transfers over $ 2.5 million.
The report also proposed abolishing the use of stamp duty and land tax and instead introducing an annual property tax, which is currently being considered by the NSW government.
It has also recommended limiting tax breaks such as negative leverage and capital gains tax (CGT) rebates, with experts blaming these policies for pushing up property prices.
Calls for scraping the ability to deduct losses from wages and salaries were also highlighted in the report.
Tax breaks for parents
According to the report, universal free childcare or more generous subsidies are needed to help parents, otherwise they lose it when they return to work.
“Primary caregivers can face the net cost of working an extra day when effective marginal tax rates are added to the childcare costs themselves,” it said.
“This should be considered one of the most fundamental flaws in our system.”
Sir. Mills added that the role of the tax system is to fund society and help it grow.
“Building roads and parks, funding public programs, medical and educational services, and paying pensions,” he said.
“Right now we are in danger of doing the opposite and ending up with a tax system that is an economic drain and a source of mistrust between people, businesses and governments.”
A very complex tax system
There are more than 10,000 pages covering 125 taxes, with dozens of anti-avoidance measures and countless complex concessions, according to Mr Mills.
Yet ten of those taxes raise 90 per cent of Australia’s tax revenue, he noted.
“There is a clear lack of confidence in the way our tax system is managed, which also contributes to the complexity and compliance costs. Much of the complexity arises when regulators tackle extra details or anti-avoidance measures designed to ensure taxpayers meet their obligations, ”he said.
“Given that the ATO has accumulated 93 percent of its expected tax revenue in the fiscal year 2017-2018, mostly from voluntary compliance, the extra complexity is hard to justify.”