Fairfax’s Ross Gittins has today published his blueprint (wishlist) for tax reform, which involves:
- Ameliorating bracket creep by “lifting all bracket limits bar the top one by the same percentage, determined by the rate of price (not wage) inflation over the period”;
- Implement a “uniformly applied land tax (which could apply to the same tax base as local government rates)” together with government-backed “reverse-mortgage arrangements for asset-rich/income-poor oldies”; and
- Reform “excessively generous superannuation tax concessions and capital gains tax concessions”, with the proceeds used to “reduce the structural budget deficit, not throw them into the tax reform pot to help justify tax cuts for high income-earners”.
Overall, I can’t fault Gittins’ reasoning, which would help improve the sustainability of the Budget whilst also improving equity.
The only things I would add – and these are minor – are the following:
- Eliminating inefficient stamp duties in the event that a universally-applied land tax is implemented;
- Extending the 2% Medicare Levy to incomes sheltered from tax by concessions; although the need to do this would obviously diminish if point 3 above was implemented properly;
- Cracking down on discretionary trusts and private companies, which allow relatively well-off individuals to avoid tax by diverting and ‘sheltering’ their income or income producing assets.
- Abolishing the private health insurance rebate, which less face it is inflationary and hasn’t reduced pressure on public hospitals.
Further, in the event that the Government was unwilling to apply a universal land tax, it should alternatively tighten means testing of the Aged Pension by including one’s principal place of residence in the assets test, supported by an expansion to the Pension Loans Scheme, so that asset-rich retirees can continue to receive income support via a government-run reverse mortgage.
The reality is that the Budget is suffering a revenue problem as much as an expenditure problem. As the population ages, Australia will need to find new revenue sources to meet the public’s expectations around healthcare and other essential services.
Gittins’ blueprint gives adequate consideration to these issues, providing added Budget revenue along with improved equity and tax efficiency.
