So we have a report – International Comparisons of Australian Taxes – that tells us that
we are not a big taxing nation in comparison to really big taxing nations like Sweden and France or even to nations that tax
at about the same level as us. As the
Homer Simpson would say, ‘duh’.

Nothing new, little gained. What is missing
is the essential issue – how the tax system is administered and structured. Yes
the USA
has a low overall tax take, but it has one of the most complex, destructive tax
systems in the world. Australia
– another relative low tax wealthy nation – is not far behind.

It is rate of tax at the margin – not the
average – that counts most and under the current system this often extremely
high, highly uncertain and with enough
money highly malleable. What is worse – as the recent report of the Howard
Government’s regulatory task force pointed out – recently “tax reforms” have
tended to make the system more complex, more onerous and more uncertain.

The source of the problem lies with
governments trying to use the tax system to do too much – to distribute
welfare, to pork barrel, to pick winners and help losers, to help regions,
promote technology, to punish sinner and promote angels, to promote savings,
and other wise attempt to macro-manage people personal and business
activities.

This has not only failed to achieve it aims
but is wasting a great deal of the nation’s effort and resources. It will
eventually push us up the international tax take ladder. It might be good
politics but it is not good policy. There is a better way. One promoted by Mr
Howard and Mr Costello in the past. This is to undertake systemic reform
focused on broadening the tax base and applying flatter and lower rates. There
are many models from which to choose, at least 101.

Tinkering will only make the system worse. But
do the architects and guardians of the tax system these last ten years have it in
them to change the system?

Peter Fray

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