Economists urge shift to taxing consumption and resources over income
Australia is on the verge of a major shift to a tax system that would do least economic damage, but experts warn it may get worse before it gets better.
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Properly taxing banks, gas, cigarettes, land and wealth instead of raiding Australians wages are among the ideas put forward by leading economists to fix the nation’s troubled finances.
Former treasury boss Ken Henry has warned Australians to “prepare ourselves for the “worst” and assume governments will have to lift taxes unless lagging productivity is fixed, adding he hopes that’s a scenario the country can “avoid”.
Mr Henry, who was Treasury department secretary from 2001 to 2011, told a tax reform roundtable hosted by independent MP Allegra Spender in Canberra on Friday he believes tough conversations on revenue are inevitable.
“I would suggest that we should be thinking about the design of tax system that would do least economic damage as we lift the revenue-to-GDP ratio over time,” he said.
“I can understand people don’t want to contemplate that prospect … we’ve been aware of the need to avoid that for 23 years.”
Mr Kenry said the current tax system was “punishing the young” by overtaxing wages and making housing less affordable.
He advocated for taxes on consumption, land, wealth and mining resources more instead.
Economist Chris Richardson told the roundtable “don’t do dumb things,” saying Australia was not taxing gas, banks or cigarettes properly.
“The government could raise an extra $2 billion a year from the petroleum resource rent tax on offshore gas, $2bn more from the big bank levy for the ‘too big to fail’ subsidy, an potentially $10bn from fixing the black hole in tobacco excise,” he said.
Ms Spender told News Corp she hoped the discussions would help inform Treasurer Jim Chalmers’ own economic roundtable being held next month and “move the debate forward” on much-needed reforms.
But she also accepted tax reform was “very difficult to do”.
“The Hawke-Keating, Howard-Costello reforms were hard won, but they have made the country better and we have all benefited from that,” Ms Spender said.
“I think that's the sort of attitude we need to get back to.”
Ms Spender acknowledged major reform may require a mandate at the 2028 election, but she would also like to see the major parties “come together as much as possible in common interests”.
“Some of the problems that we have in our tax system, they are going to outlast any government, and so solving them even imperfectly is going to be better for any government that comes in,” she said.
Ms Spender said concern about the future of Australia’s economy was multigenerational, with older people increasingly worried about the opportunities for their children and grandchildren.
With housing key among those concerns, Ms Spender said she would “love” the government to be open to a conversation about negative gearing and capital gains tax concessions.
“Tax is not the only thing that’s going to solve housing, I genuinely agree that a lot of that is actually about supply,” she said.
“But tax plays a role in that as well.”
Speaking in Brisbane, Mr Chalmers said there was no quick fix on lagging productivity, which had been a “longstanding challenge” of Australia’s economy.
“We went to work with business and unions and the community more broadly to turn that around over time,” he said.
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Originally published as Economists urge shift to taxing consumption and resources over income
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