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A tax on every dollar you earn and a 15% GST?

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Pointy-headed smarties want to change or fix the tax system and the ideas are controversial! They include taxing you on every dollar you earn and they want to throw more goods and services into the GST. And while economists are giving the ideas the thumbs up, the really big question is: what politicians would have the guts to run with these huge changes?

Because the changes will have implications on state governments, what federal leader could get the Premiers to play ball? As Paul Keating once warned: “Never get caught between a Premier and a bucket of money!”

Accounting giant PwC, who has come up with the blueprint for national debate (after releasing the document to Fairfax Media), tells us that we have 125 taxes out there but 90% of the revenue raised comes from only 10 of them. Well, that sounds crazy! And for those wondering if a future Government could get changes through, given the fact that in the early years, compensation for low income earners would be economically, socially and politically vital, economists can see the upcoming budget surpluses over the next few years perfect for introducing a new and better tax system.

Of course, PwC is getting support from the likes of the Business Council, which has been wishing for years that a Government would have the guts to broaden the GST base and raise the rate to 15%, while cutting income taxes for ordinary Australians, as well as business.

However, having guts on tax isn’t the strong suit for our politicians, since John Howard had the rocks to go to an election with a GST and get away with it, but only just. For those who don’t remember tax history (and I’d suggest there aren’t many), the turning point for sentiment in favour of the GST came when people were shown what their tax cuts would be.

If you want the Australian people to seriously think about voting for a good idea, just sell it with a beautiful big tax cut! And it could be possible, with the former second tax commissioner, Richard Highfield, telling us that $8 billion a year is lost to the tax office because of structural problems with our tax system.

That said, it might have to be a huge tax cut bucket to get enough voters and independent politicians, let alone state premiers, to swallow these changes.

Let me cut to the chase and highlight some of the proposals that PwC and economists want to be involved in a national debate:

• The tax-free threshold of $18,200 would be scrapped.

• You’d pay tax on every dollar you earn.

• Big tax brackets would go. 

• The first rate of tax might be 0.2% but it could rise for every $1,000.

• There’d be more goods and services in the GST base.

•  The GST would be 15%.

• There’d be death taxes.

• Land taxes would replace stamp duty.

• A flat 30% tax rate would apply to all savings.

• The capital gains tax discount would go.

OK, these are the first blush worrying aspects of a new tax system but there would be promises of a better tax life, if these changes could be accepted.

First up, significant tax cuts would be promised, which become more important when you see that the USA and the UK cut their tax rates so significantly in recent years. Small companies pay a 20% tax rate, while here in Australia we look like getting a 25% tax rate by  2021! Income tax cuts for ordinary Aussies would have to be big enough for any changes to get a national thumbs up.

Second, the new dynamic tax system, where the tax rate increases by small amounts over every $1,000, would kill off bracket creep, which sees a pay rise offset by the big jump in tax rates.

What looks likely is that if these changes are to be supported, it might get down to getting younger Australians to take on older Aussies. This in the SMH today might explain my thinking:

“Australian Bureau of Statistics figures show that between 2002 and 2014, wealth for those aged 55 and over grew by 42 per cent compared to 7 per cent for people aged 25-34,” Eryk Bagshaw writes. “PwC modelling shows implementing the flat 30 per cent rate would increase the number of taxpayers by 27 per cent, helping to alleviate pressure on the tax base as the population ages.”

It might sound good for lots of Aussies but damn scary for others. And the only chance that any of these controversial tax changes could happen will rest on a courageous, charismatic leader coming along, who we trust so much that we jump on board his or her reform train. From what I see today, that’s a long way off. But what I’m surprised about right now is that a lot of voters are not sure what Bill Shorten is promising about negative gearing and capital tax discount changes. If the Coalition explains them to ordinary voters and Bill still wins the next election, then maybe young Australians will trump older Australians and real tax reform might happen.

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Published: Thursday, October 18, 2018


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