The Prime Minister has turned an arborist’s eye on the tax system and declared it needs “root and branch reform”. Following urging from the 2020 summiteers, the PM’s secateurs are being sharpened for the work ahead. Crikey asked five leading Australian economists what they would trim and where they would apply the legislative blood and bone.
Adam Carr, Senior Economist, UBS
I do think ongoing reforms are needed. We need to have a globally competitive tax system. There have been steps toward that over the last decade or more and that process shouldn’t stop now. I think we need to simplify the tax system, and we need to reduce the top marginal rate. Those are the two areas that need to be looked at first. If you look around the states there is a broad variety of taxes on everything and anything and we need to get rid of that.
Richard Gibbs, Chief Economist Macquarie Bank
When you look at the complexity and the anomalies that are in there still, when you look a the number of pages in the Tax Act, on any criteria I would say it does need streamlining and further simplification. The Tax Review Board hasn’t really got a long way in that process at this point in time. And one of the first aspects that needs attention is the international tax comparability. The second one is probably looking carefully at how the tax system on the corporate tax side can interact with the capital expenditure side and investment. If you look at Singapore, for example, they have been able to accept and retain a significant amount of foreign investment, particularly in financial services, and that has been a result in large part of an efficient tax regime.
Alan Oster, Chief Economist, NAB
It never hurts to have a look. I think it’s slightly ingenuous to say we haven’t had any major reform in tax for the last 12 years. I’d have thought the introduction of the GST was one of the biggest tax reforms we have ever had. Good old David Morgan who was in Treasury when I was there, and who was in charge of the last tax review, I’m sure he was instrumental in pushing for another tax review. I’d be looking first at the marginal tax rates. I still think the top marginal tax rate is too high. And the gap between the top marginal tax rate and the corporate tax rate is way too high. I think there are a lot of state taxes – payroll taxes for example – that are essentially unproductive and can hurt labour markets.
Josh Williamson, Senior Strategist, TD Securities
Yes, I do think a tax review is needed and I think taxes in relation to superannuation contributions. I think it’s very important to rectify and actually increase savings rates to create more of an incentive for private savings. There needs to be a fundamental look at not only the tax scales for personal income tax, but the entire tax scales and how they are applied. High effective marginal tax rates that have kept marginal people out of the workforce definitely need to be addressed. Recipients on welfare may have made decisions not to come back to the workforce because they were facing tax rates of 50% to 70% on their marginal income, so there is no incentive to go back to work. Those two things would be on the top of my list.
Shane Oliver, Chief Economist, AMP Capital Investors
The tax reform required is in the form of simplification. The key problem now is one of complexity and rewriting the Tax Act. I don’t think we need to focus on the tax base too much. It’s pretty broad as it is and covers most forms of income, and likewise we have fairly broad sales tax, though economists would probably argue we should include food in the GST, but I think the chances of that occurring are zero. The other area is the ongoing high marginal tax rates. They have come down for high income earners, but there are still some tax impediments for people on low incomes or welfare returning to work.