“New
figures from the Organisation for Economic Co-operation and Development
conclusively show that Australia’s top tax rate is 4.5 percentage points higher
than the average for the industrial world,” The Australian reports today.
“The update of the OECD’s tax database contradicts Treasurer Peter Costello’s
belief that Australia’s top rate is in line with other
industrialised nations.”

He mightn’t
be in the witness box at Cole, but the Treasurer remains on trial over this
issue. A new book from the Centre for Independent Studies: Taxploitation: The
Case for Income Tax Reform
presses the points of the prosecution home. It says Australia’s increasingly
irrational income tax system is riddled with distortions and disincentive
effects:

There are so many special
allowances, exemptions, credits, offsets and write-offs that tax law has become
almost indecipherable, and gross amounts of money and time get spent trying to
reduce liability to tax.

Most really-high earners are paying
a lower rate of tax than workers earning little more than average income.
Retirement savings are viciously taxed, and because tax brackets are not indexed
to inflation, the total tax-take increases year by year without anybody even
realizing it.

The government is happy to make
electorally popular tax cuts when the budget allows, but sees little political
advantage in a more fundamental restructuring of the income tax system.

High income taxes undermine
national prosperity. ‘Because the threshold at which people start to pay tax is
well below subsistence income, people are taxed before they have earned enough
to keep body and soul together…

Yet is Costello
the sole offender? The Prime Minister wasn’t exactly enthusiastic about tax
reform when he appeared on Meet the Press the weekend before last. There’s not
even a transcript of his comments on his website.

We very
much talk about “the Howard Government”, not “the Howard/Costello Government”
the way we talked about “the Hawke/Keating Government”. John Howard has
ownership of economic policy, not the Treasurer.

The PM’s
caution and conservatism restricts his range of action. The major change to the
tax system he has pursued, the GST, came about due to pressure from the
Business Council of Australia and a need to fill an awkward policy vacuum just
12 months or so into the life of his government.

An
editorial in The Australian last week took a stick to the Treasurer for
stalling the process. One from The Age may prove more prudent.
Its theme was the same as usual: “We need more than tax cuts. We need real tax
reform.” The detail, however, was different: “Tax reform needs
to be pragmatic, not utopian… People on welfare need more incentives to move
from welfare to work. Low-income and lower middle-income earners – now paying
higher average tax rates than in 1996 – deserve their share of tax cuts. And at
all levels, we need lower tax rates and fewer tax breaks, so investment and
spending decisions are driven not by tax breaks but by economic returns.”

Delivering
such as system is a matter for a ministry as a whole, not just a prime minister
or a treasurer.

Of course, a
person who got the process going would look like a real leader…

Peter Fray

Fetch your first 12 weeks for $12

Here at Crikey, we saw a mighty surge in subscribers throughout 2020. Your support has been nothing short of amazing — we couldn’t have got through this year like no other without you, our readers.

If you haven’t joined us yet, fetch your first 12 weeks for $12 and start 2021 with the journalism you need to navigate whatever lies ahead.

Peter Fray
Editor-in-chief of Crikey

JOIN NOW