Without significant change, Australia’s tax system is at risk of becoming a source of serious economic drain, Andrew Mills, director of tax policy at The Tax Institute, has said in a report titled The Case for Change.
According to Mr Mills, Australia’s tax laws are costing the nation about $50 billion in compliance costs.
“Twelve years ago, [former Treasury secretary] Ken Henry estimated that compliance with the tax law costs us an estimated $40 billion,” Mr Mills said.
“Since then, costs have continued to grow, greater complexity has been piled onto the tax system for everyone.”
Bushfires, floods and the COVID-19 pandemic caused the Australian government to take on record levels of debt, with the 2021–22 budget projecting that the Commonwealth government’s gross debt will reach $963 billion by 30 June 2022.
The Tax Institute’s report examines how the tax system can support Australia as it struggles to bring its burgeoning debt under control by raising revenue through sustainable tax bases and reducing the cost of compliance with the tax code.
Intending to serve as a discussion starter identifying important areas of reform that should continue to be debated, the 200-plus-page document makes a raft of recommendations to streamline Australia’s tax system and bring down the growing cost of compliance.
“A huge part of that cost is avoidable if we address the systemic issues of our system instead of continuing to tweak around the edges,” Mr Mills said.
“You can put as many Band-Aids as you like on a broken limb, but it doesn’t change the fact that it’s broken.”
A handful of the issues identified throughout the effort, include:
- Australia’s GST needs an overhaul.
According to The Tax Institute, compliance eats up about 51 per cent of the revenue gained from GST. That amounts to more than $155 million in the last five years.
While there have been amendments to the GST law, there have been no substantive changes to the GST in that time. It was intended to be a growth tax, yet The Tax Institute reports GST has not kept up with the growth of the economy over the past 20 years, and, in fact, has declined in relation to the size of the economy.
- Sixty per cent of Australia’s tax revenue comes from what the report defines as the most harmful for economic growth: corporate taxes and personal income taxes.
As such, The Tax Institute has recommended exploring what it deems to be “efficient options” like land taxes, which are less damaging to the economy than fees such as stamp duty.
- Corporations need to be paying their fair share.
The Institute opined that successive governments have failed to maintain a sustainable tax system, resulting in a system where multinational corporations are able to pay less than they should.
- Australia’s tax law is too complex.
Tax law covers 125 taxes and is now more than 10,000 pages long, with numerous amendments and added concessions. However, 90 per cent of tax revenue is derived from just 10 of these laws.
Continuing to tack on additional measures and inefficient taxes will not result in a thriving economy in 10 years’ time, the report predicted.