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A comprehensive review and overhaul of the system should be high on Labor’s agenda when developing the upcoming federal budget, submissions say.
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Industry bodies push for tax system shake-up
30 January 2024
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Industry bodies are calling on the government to prioritise reforming a taxation system they believe has become unsustainable, overly reliant on income tax and no longer fit for purpose, according to pre-budget submissions made last week.
The Tax Institute, CA ANZ and the Institute of Financial Professionals each said in separate submissions that a comprehensive review was needed to chart a path towards a more sustainable system supportive of productivity and economic growth.
The Tax Institute recommended a rebalancing of the country’s tax mix on the basis that income tax had become the government’s primary source of revenue at a higher proportion than other OECD countries.
“The current heavy reliance on inefficient taxes, particularly personal income tax, hinders the government’s ability to raise sufficient revenue to provide a better future for Australians,” the submission said.
It said spending and societal pressures brought on by an ageing population meant comprehensive reform was “overdue” to support Australia’s economic growth.
To diversify the tax mix, the submission suggested using “more efficient broad-based taxes” such as increasing GST and land taxes.
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The Tax Institute also called for scrapping the FBT and luxury car tax due to their limited revenue-raising ability but high compliance burdens for taxpayers and administrative costs for the ATO.
“Some of these taxes, like the FBT, could be replaced with more streamlined and efficient regimes that better balance the compliance burden with the revenue raised,” its submission said.
Simon Grant, CA ANZ advocacy group executive, partially attributed the government’s reliance on income tax to bracket creep.
“It’s time for a wider discussion about Australia’s heavy reliance on personal income tax collections,” he said.
“The federal government has gained a lot of revenue from Australian taxpayers over many years because of bracket creep as Australia does not index income tax thresholds for the impact of inflation.”
“It is often overlooked that Australia’s top personal tax rate has long been considered high by international standards and applies from a comparatively low income. Policymakers need to keep an eye on the international competitiveness of our personal tax system.”
CA ANZ also echoed the Tax Institute’s calls to broaden the GST base and rate to “relieve strain on the income tax system”.
“There have already been numerous reviews of Australia’s tax system. The federal government should announce a roadmap of how Australia will achieve tax reform. This needs to be the focus of tax discussions going forward,” it said.
The IFPA's submission said recently implemented tax integrity measures around multinational avoidance fell “a long way short of comprehensive tax reform”, suggesting abolishing the luxury car tax and increasing the GST registration threshold for not-for-profits.
It also called for “broad based” tax reform. “Australia's tax system across the Federation is no longer fit for purpose,” it said.
The last major inquiry into the tax system, known as the Henry Review, was completed in 2010.
Among its 138 recommendations were a simplification of personal income tax and that revenue be raised between four tax bases (personal income, business income, private consumption and rents from natural resources and land).
However, due to the review’s parameters, it did not consider increasing the rate or broadening the base of the GST.
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