Sweeping tax changes urged in new report to tackle Australia's national debt
There are fresh calls for the Federal government to introduce a controversial new tax to help pay back the $1 trillion in national debt.
Australia needs to overhaul its “outdated” tax system, with the introduction of a controversial tax a key part of the change.
In its latest economic report Deloitte calls for the government to urgently fix Australia’s tax system under a five-point plan.
In one of the more controversial elements of this tax change, Deloitte is calling for an introduction of an inheritance tax.
According to Deloitte, a wealth tax should start at 10 per cent for assets worth more than $100,000, adding on average about $3bn to the national coffers.
While this has always been a controversial tax in Australia, much of the western world has already implemented a death duty.
Deloitte Access Economics partner Stephen Smith said introducing an inheritance tax would remove many of the inequalities in the current system.
“The intergenerational inequities that will result from clinging on to the current tax system are clear. As debt mounts, and the reliance on personal income tax rises, the fiscal burden will disproportionately fall at the feet of younger, working age Australians,” Mr Smith said.
Deloitte also points out Boomers and Gen X received an unexpected budget boost from a changing world.
Asset prices over the last 40 years have jumped as a combination of a rising China, new technology, globalisation and the financialisation of the world economy led to “ballooning asset prices”.
“Wealth taxes are a way to repair the budget, help all Australians share in the asset price windfall that has flowed to older generations over the last 40 years, and help to prevent inequality from cascading through future generations,” Mr Smith said.
They say this distribution has been undertaxed and unevenly distributed.
Deloitte says the budget is coming in slightly better than forecasted but will still finish in the red by a projected $38.9bn.
The national debt is tipped to pass $1 trillion in the coming months.
Escalating spending and this outdated tax system will mean budget deficits for the next decade.
To help raise an average of $57bn a year to help pay back the national debt, Deloitte has come up with a five-point plan.
Part of this is based on taking the burden off working class Australians.
Under this scheme the personal income tax-free threshold should lift to $33,000 from $18,200 and then everyone making up to $330,000 should pay the same 33 per cent in taxes.
Once a worker makes more than $330,000 they should pay 45 per cent income tax.
At the same time these new income tax brackets would have their thresholds indexed to grow at 2.5 per cent per year, broadly in line with CPI inflation.
Figures released by the Parliamentary Budget Office in September forecasts a 90 per cent rise in personal income tax collection to $682bn over the next 10 years, compared with $357.8bn paid today.
Mr Smith says while this is good policy it comes with a huge caveat of costing the budget $54bn over a decade.
“These reforms would remove the disincentive to work that comes from having a tax-free threshold well below the point at which someone no longer qualifies for income support,” he said.
“They would also nullify ‘bracket creep’, which stealthily increases personal income tax each year.”
To help pay for the falling revenue Deloitte calls for the GST to be increased to 15 per cent and broadened across the base to include all food and educational items.
This policy alone would add around $90bn to the budget bottom line by 2036.
To offset any pain felt by those on government benefits, including retirees, Mr Smiths says rates should be lifted in line with higher GST costs.
Under Deloitte’s proposed reforms local businesses will pay a flat 20 per cent tax rate unless they make super profits.
This compares to a current 25 per cent for small businesses and 30 per cent for larger businesses.
This is in line with calls from RBA deputy governor Andrew Hauser who says “Australia screams investment potential”.
Deloitte argued lowering company taxes in line with the rest of the world will make Australia a more attractive place to invest.
But to offset the falling revenues businesses should also have to pay a “super profits” tax if they make more than five per cent more than the 10 year government bond rate.
“A super profits tax could raise more than enough revenue to offset the reduction in company tax, at a lower economic cost,” Mr Smith said.
Finally Deloitte calls for a change that would likely hurt investors is a reduction of the capital gains discount from 50 per cent after a year to 33 per cent.
Mr Smith said this would improve equity in the tax system and tackle some of the distortions in the Australian challenged housing market.
Currently asset holders are entitled to a 50 per cent discount on capital gains taxes if they hold the investment for more than 12 months.
This is across the board including housing.
Originally published as Sweeping tax changes urged in new report to tackle Australia's national debt
