Tax & Transfer review - towards a simplified tax regime?

With the launch of their review of Australia’s tax system, Treasurer Wayne Swan and Treasury Secretary Ken Henry highlighted the need for a tax reform to simplify Australia’s complex tax system to increase international competitiveness. 

Business groups welcomed the review expressing that they’re hoping for a structural overhaul. At the top of the wish list were cuts in personal and company rates as well as capital incomes tax.

To take an example of Australia’s sluggish trend compared to other OECD countries, the review found Australia’s corporate tax revenue as a proportion of GDP is the fourth highest in the OECD.  Yet it also found that those taxes rather than labour or consumption can have the most detrimental impact on economic growth according to studies by the OECD. 

Capital gains tax as it currently is structured is a tax on investment. In order to gain international competitiveness, the reform needs to try and reduce the level of taxes on constructive investments. 

The review also identifies other areas of tax-transfer system that needs “untangling” to give the right balance and interaction between tax and welfare system.  The Treasury Secretary warned that even though the exact dollars figures of how much our convoluted tax system is costing our economy cannot be known, “we can be sure that the cost is very substantial,” he said.