Anyone for flat tax?
Yes, I know all you American right-wing fundamentalists would prefer no tax at all, so please spare me the reiteration of your gripes.
I am a great believer in flat tax as it would greatly simplify the taxation system, including calculation of personal or company tax, and in the long run would be a major incentive for people at all current tax levels to work harder, knowing that they would not be penalised for doing so.
This is an item from the only Australian national newspaper, "The Australian." [Founded in 1964 by Rupert Murdoch when he still had some ethics. It remains one of Australia's most highly respected newspapers.]
Americans and others please note that the conservative party in Australia is called "The Liberal Party."
[The Australian, February 28, 2006]
Federal Treasurer Peter Costello has instigated an inquiry designed to find the world's best tax systems, which will include a review of low-taxing Asian economies and eastern European countries where flat taxes are as low as 16 per cent.
One of the prominent businessmen conducting the inquiry, Dick Warburton, said yesterday it would not be limited to the 30 developed nations in the Organisation for Economic Co-operation and Development. It would include nations such as Romania, Slovakia and Estonia, which have a single low tax rate for all employees that also applies to companies.
"These are not beyond our remit and we discussed these countries at our last (Board of Taxation) meeting," Mr Warburton said. "We'll look beyond the OECD."
In Romania, the rate is 16per cent, while in Slovakia it is at 19per cent and Estonia 24per cent. Mr Warburton said the review would definitely include Singapore and Hong Kong, both of which have low personal income tax rates. Mr Costello said his inquiry aimed to provide a definitive set of facts showing the areas in which Australia met international practice and those where it lagged.
"Armed with those facts, we will be able to direct our attention to those areas where Australia lags and, in response to that, be able to ensure that the Australian taxation system meets international practice," he said.
Access Economics estimates the cost of getting the top rate of tax down to 42per cent, which is the average rate for the non-European members of the OECD, would be $1.7billion in the first year, rising to $2.4billion by the fourth year. The cost of taking the 47c and 42c rates to 40c would be more than $15billion over the next four years.
While interest in the tax investigation has focused on comparison with the tax rates of Australia's major competitors, Mr Warburton said the inquiry would not focus on developed nations' averages, which are distorted by small high-taxing countries in western Europe.
"We're going to look behind the averages to get some kind of a weighting and a range," he said. "For example, the threshold for the top personal tax rate in the US is about $US300,000. What happens if you go with that, or one that is much lower, or an average?"
Mr Warburton said he and Australian Chamber of Commerce and Industry chief executive Peter Hendy had not been given any riding instructions from Mr Costello, other than to "get the facts" on where Australia stood. He said that although Mr Costello was of the view that Australia was a low-taxing country, he did not express an opinion about what he expected the review to find.
The Treasurer's major concern was that the debate on personal tax was distorted by people "cherry picking" elements of other systems and saying Australia should follow them. The review would go beyond headline tax rates and thresholds and would also try to compare the generosity of deductions and exemptions in other tax systems.
Mr Warburton said it was premature to conclude that the inquiry would pave the way for a trade-off of tax cuts for fewer workplace deductions. The inquiry would also aim to identify levies, such as road tolls. It would also look at high effective rates levied on low-income individuals as family and other benefits are withdrawn.
Mr Warburton said this was a difficult area to resolve, as any movement of thresholds or taper rates produced winners and losers. "There might be 80per cent winners, but in tax, the winners are grinners and say nothing and the 20per cent who lose make a lot of noise."
Liberal MP Sophie Panopoulos, a leading advocate within her party for tax and welfare reform, said scrutiny of Australia's tax and welfare payment system was needed for real tax reform to take place.
"It would be particularly useful if this inquiry included in its benchmarking of our taxation system benchmarking on family taxation," Ms Panopoulos said. "That is a comparison of effective marginal tax rates for working families. We may learn something from the various forms of income splitting applied in other countries."