Economists want broader tax base and lower rates as review begins
http://business.theage.com.au/economists-want-broa [2008-7-7]
Tag : Bracket Support
BROADENING the base and reducing the rate are key themes in taxreforms suggested by Australia's leading economists. Prime Minister Kevin Rudd put tax reform on the agenda in May whenhe established a review of the tax system, with only the GST andthe tax breaks on superannuation for over-60s off the agenda. Theinquiry team, chaired by Treasury secretary Ken Henry, is not dueto report until late next year. Australian Workers Union economist Brad Crofts said the Governmentshould use the review to slay bracket creep, where rising incomespush taxpayers into higher tax brackets. "Rather than hard-wiring tax cuts into policy in future funded frombracket creep, simplify the tax scales, make thresholds as generousas possible and lock them in by indexing them," he said.
ANZ chief economist Saul Eslake said the steep marginal tax ratesexperienced by people as they moved out of the welfare system andinto work was problematic. "I'd also like to see more work done on reducing the interactionbetween the income tax scale and the abatement rates for socialsecurity benefits to reduce 'poverty traps' and improve incentivesto participate in the labour market," he said. Federal-state relations were also nominated as an area for reform.
"There is a very strong economic case for eliminating all of thedistortive taxes currently levied by the various states," said theglobal head of economics at Westpac, Bill Evans. "Increases incurrent federal taxes, including the GST, should be considered tofund such changes."
AMP Capital chief economist Shane Oliver was also keen to see abroadening of the base of the GST to include food, with theproceeds used to cut the overall rate, despite it being outside thescope of the Government's review. But Dr Oliver acknowledged thepolitical difficulties of a change to the GST, which would requirethe support of every state. "There is Buckley's chance of that," hesaid. BIS Shrapnel senior economist Richard Robinson proposed directingall GST revenue earned by the state in which it was raised to thatstate. "You could then abolish the Grants Commission, or part ofit," he said.
Master Builders Association chief economist Peter Jones said thetax review should be used to launch a pre-emptive strike onproblems caused by changing demographics.
"Tax reform can help to address challenges Australia will face overthe next 20 years from an ageing population," he said. "Incentivesin the tax system should encourage the development of human capitalas a way of addressing skills shortages." Jakob Madsen, economics professor at Monash University, said theproblem should be tackled by introducing a financial penalty forleaving the labour market before the age of 65, and that theretirement age should be increased.
The tax system should be a weapon in the slashing of carbonemissions, BT Financial Group chief economist Chris Caton said,including an increase in the tax on petrol. The supply of rental property could be boosted by changes tonegative gearing, with University of Western Sydney economist SteveKeen suggesting only landlords who could show one year of rentalreturns for the property should be eligible.
BROADENING the base and reducing the rate are key themes in taxreforms suggested by Australia's leading economists. Prime Minister Kevin Rudd put tax reform on the agenda in May whenhe established a review of the tax system, with only the GST andthe tax breaks on superannuation for over-60s off the agenda. Theinquiry team, chaired by Treasury secretary Ken Henry, is not dueto report until late next year. Australian Workers Union economist Brad Crofts said the Governmentshould use the review to slay bracket creep, where rising incomespush taxpayers into higher tax brackets. "Rather than hard-wiring tax cuts into policy in future funded frombracket creep, simplify the tax scales, make thresholds as generousas possible and lock them in by indexing them," he said.
ANZ chief economist Saul Eslake said the steep marginal tax ratesexperienced by people as they moved out of the welfare system andinto work was problematic. "I'd also like to see more work done on reducing the interactionbetween the income tax scale and the abatement rates for socialsecurity benefits to reduce 'poverty traps' and improve incentivesto participate in the labour market," he said. Federal-state relations were also nominated as an area for reform.
"There is a very strong economic case for eliminating all of thedistortive taxes currently levied by the various states," said theglobal head of economics at Westpac, Bill Evans. "Increases incurrent federal taxes, including the GST, should be considered tofund such changes."
AMP Capital chief economist Shane Oliver was also keen to see abroadening of the base of the GST to include food, with theproceeds used to cut the overall rate, despite it being outside thescope of the Government's review. But Dr Oliver acknowledged thepolitical difficulties of a change to the GST, which would requirethe support of every state. "There is Buckley's chance of that," hesaid. BIS Shrapnel senior economist Richard Robinson proposed directingall GST revenue earned by the state in which it was raised to thatstate. "You could then abolish the Grants Commission, or part ofit," he said.
Master Builders Association chief economist Peter Jones said thetax review should be used to launch a pre-emptive strike onproblems caused by changing demographics.
"Tax reform can help to address challenges Australia will face overthe next 20 years from an ageing population," he said. "Incentivesin the tax system should encourage the development of human capitalas a way of addressing skills shortages." Jakob Madsen, economics professor at Monash University, said theproblem should be tackled by introducing a financial penalty forleaving the labour market before the age of 65, and that theretirement age should be increased.
The tax system should be a weapon in the slashing of carbonemissions, BT Financial Group chief economist Chris Caton said,including an increase in the tax on petrol. The supply of rental property could be boosted by changes tonegative gearing, with University of Western Sydney economist SteveKeen suggesting only landlords who could show one year of rentalreturns for the property should be eligible.
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