If you’re
crystal ball gazing for a glimpse of what might happen on the tax front come
Budget Day, the picture this morning has been cloudy. Dick
Warburton and Peter Hendy’s quick and dirty review of the tax system gets
handed to the Treasurer today.

The review
is expected to increase pressure for a revamp of taxation, according to The SMH.
The Australian suggests it will say the top tax rate is too high,
while family tax cuts are mooted, according to the News
Limited tabloids
.

Well,
whatever the review might say, the important thing is what the Government
actually does with it. Yesterday,
the Prime Minister told Channel Ten’s Meet the Press that tax cuts were a
reform in themselves.

Which sorta
kinda begs the question – has it struck anyone that John Howard is actually
quite happy with the tax system as it is? Perhaps the Prime Minister actually
thinks it’s a good thing that business owners, doctors, lawyers and
tradespeople can effectively pay a lower tax rate than poor old PAYE mugs by
structuring themselves as businesses. Perhaps he thinks having a lower
corporate, compared to personal, rate of taxation is an appropriate reward for
entrepreneurial spirit. Perhaps he’s happy with a system that creates a burden
he can reward with largesse at election time, rather than removing it once and for
all.

“To me the
most important thing a tax system can do is to provide incentive for hard work”,
the PM said yesterday. Yet that’s exactly what the tax system doesn’t do.
Nothing in Australia is taxed higher than the honest
sweat of our brows. What the tax system does do is provide a big incentive for
high income earners with the right circumstances to turn themselves into
companies – or make risky investments with borrowed funds.

So while it
will be interesting to see what Messrs Warburton and Hendy have to say to the
Treasurer, he seems powerless to change anything. The buck seems to stop with
the Prime Minister. And he doesn’t want to do much.

Peter Fray

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