Bloody taxman closing tax loopholes.
Top economists want tax loopholes closed
By Economics correspondent Stephen Long
Updated Wed Apr 14, 2010 7:28am AEST
The report compares Australia to the OECD and finds it is a low-tax nation. (AAP: Alan Porritt)
Australia is a low-tax country compared with other developed nations, according to a group that includes some of the nation's most prominent economists.
In a report to be released on Wednesday, Tax Watch says Australia ranks in the bottom third of OECD countries in terms of tax levels.
The group says high-income Australians use many loopholes, including the family home, to minimise their tax.
Tax Watch convenor Julian Disney says the group wants the long-awaited tax review headed by Treasury boss Ken Henry to target those loopholes and dispel the idea that Australia is a high-taxing nation.
Professor Disney says a key area needing change is housing, which he says suffers huge losses of revenue and distortion.
"I think one of the major causes of the house price inflation is the tax system," he said, referring to negative gearing that allows investors to write off the costs of their interest payments and the concessional capital gains tax.
"But also the total exemption of principal residences or the family home, as they're sometimes called, from capital gains tax, land tax, pension assets test.
"I wouldn't argue for them to be fully removed, but what they've done is to aggravate house price inflation by sucking people into paying more for their housing because of the tax advantages.
"And we'd do better, for example, to drop stamp duty and help people to get in but then tax them more later."
Tax Watch says it is also striking that Australia's government expenditure, as a share of GDP, is very low.
"The OECD only gives data for 28 of the 30 countries, but of those 28 we're the third lowest in terms of government expenditure," Professor Disney said.
"So we're not a big government-spending country."
Much of the thrust of the discussion around the Henry tax review has been about promoting Australia's tax competitiveness, with the implication that business is highly taxed here compared to overseas.
Professor Disney says there is little doubt that that is not true.
"The Henry review itself in one of its earlier papers, and the independent review under the Howard government, both concluded that it wasn't true to say that the business sector was highly taxed across the range of business sector taxes," he said.
"If you then focus on the corporate income tax rate [of 30 per cent], even there we're actually mid-level amongst the comparable countries in terms of level of development.
"And there's no longer a trend to cut below 30 per cent, so we're not out of step remaining at 30 per cent."
Income tax
Professor Disney says he does not believe personal income tax rates need to increase.
"What needs to be done mainly is to reduce or remove exemptions, loopholes, distortions. And if you do all that there's even possibly room to reduce some tax rates," he said.
"But we've generated especially over the last 10 or 15 years far too many of these loopholes and exemptions.
"Some of the litmus tests I think really for whether the Henry report calls it as it is, I think, are superannuation where we have massively unfair distorting and wasteful tax concessions.
"They're upside down because they pay far more to the wealthy than to the less wealthy."
Professor Disney has raised political holy cows, and it remains to be seen whether any government would be willing to touch negative gearing, capital gains tax concession, let alone put a tax on the family home.
"I think the first thing is for the Henry report to tell it like it is. And over the 20 years I know from involvement with a number of official inquiries into these things, there's been huge pressure from both sides of politics when in government not to tell it like it is," Professor Disney said.
"We really need someone in this position, even if then the politicians decide not to go ahead, we really need someone to tell it like it is.
"And as I say, the IMF and The Economist, even here in Australia the Financial Review and others have identified this as a major problem and we've got to address it."
Top economists want tax loopholes closed
By Economics correspondent Stephen Long
Updated Wed Apr 14, 2010 7:28am AEST
The report compares Australia to the OECD and finds it is a low-tax nation. (AAP: Alan Porritt)
Australia is a low-tax country compared with other developed nations, according to a group that includes some of the nation's most prominent economists.
In a report to be released on Wednesday, Tax Watch says Australia ranks in the bottom third of OECD countries in terms of tax levels.
The group says high-income Australians use many loopholes, including the family home, to minimise their tax.
Tax Watch convenor Julian Disney says the group wants the long-awaited tax review headed by Treasury boss Ken Henry to target those loopholes and dispel the idea that Australia is a high-taxing nation.
Professor Disney says a key area needing change is housing, which he says suffers huge losses of revenue and distortion.
"I think one of the major causes of the house price inflation is the tax system," he said, referring to negative gearing that allows investors to write off the costs of their interest payments and the concessional capital gains tax.
"But also the total exemption of principal residences or the family home, as they're sometimes called, from capital gains tax, land tax, pension assets test.
"I wouldn't argue for them to be fully removed, but what they've done is to aggravate house price inflation by sucking people into paying more for their housing because of the tax advantages.
"And we'd do better, for example, to drop stamp duty and help people to get in but then tax them more later."
Tax Watch says it is also striking that Australia's government expenditure, as a share of GDP, is very low.
"The OECD only gives data for 28 of the 30 countries, but of those 28 we're the third lowest in terms of government expenditure," Professor Disney said.
"So we're not a big government-spending country."
Much of the thrust of the discussion around the Henry tax review has been about promoting Australia's tax competitiveness, with the implication that business is highly taxed here compared to overseas.
Professor Disney says there is little doubt that that is not true.
"The Henry review itself in one of its earlier papers, and the independent review under the Howard government, both concluded that it wasn't true to say that the business sector was highly taxed across the range of business sector taxes," he said.
"If you then focus on the corporate income tax rate [of 30 per cent], even there we're actually mid-level amongst the comparable countries in terms of level of development.
"And there's no longer a trend to cut below 30 per cent, so we're not out of step remaining at 30 per cent."
Income tax
Professor Disney says he does not believe personal income tax rates need to increase.
"What needs to be done mainly is to reduce or remove exemptions, loopholes, distortions. And if you do all that there's even possibly room to reduce some tax rates," he said.
"But we've generated especially over the last 10 or 15 years far too many of these loopholes and exemptions.
"Some of the litmus tests I think really for whether the Henry report calls it as it is, I think, are superannuation where we have massively unfair distorting and wasteful tax concessions.
"They're upside down because they pay far more to the wealthy than to the less wealthy."
Professor Disney has raised political holy cows, and it remains to be seen whether any government would be willing to touch negative gearing, capital gains tax concession, let alone put a tax on the family home.
"I think the first thing is for the Henry report to tell it like it is. And over the 20 years I know from involvement with a number of official inquiries into these things, there's been huge pressure from both sides of politics when in government not to tell it like it is," Professor Disney said.
"We really need someone in this position, even if then the politicians decide not to go ahead, we really need someone to tell it like it is.
"And as I say, the IMF and The Economist, even here in Australia the Financial Review and others have identified this as a major problem and we've got to address it."
