David Leyonhjelm introduces bill to slash taxes

David Leyonhjelm has introduced a bill to abolish more than nine taxes and slash the overall take by more than $600bn over three years.

Senator David Leyonhjelm in the Senate. Picture: Kym Smith

Liberal Democrat Senator David Leyonhjelm has introduced a bill to abolish more than nine taxes and slash the overall take by more than $600bn over three years, including introducing a ‘flat tax’ of 20 per cent of workers’ incomes.

The politically charged bill, introduced yesterday into the Senate, the second last week of parliament for the year, would set both the personal and company tax rate 20 per cent, lift the tax free threshold to $40,000, and abolish tobacco, alcohol, and fuel excise.

“High taxes stop Australians from spending their own money. High taxes also discourage Australians from saving, impede investment and employment, and impose unnecessary compliance costs on individuals and businesses,” Senatoe Leyonhjelm said, introducing the bill.

“Such a massive tax reduction is warranted because tax involves using coercion to take someone’s property, and so should be kept to a minimum,” he added.

An accompanying Parliamentary Budget Office costing said the reform would see collections slump $187bn in the first year of operation, rising to $221bn by the third. “Sin taxes are stratospheric in Australia and are totally disproportionate to associated taxpayer-funded health costs,” the senator said.

In August the government abandoned its plans to cut the corporate income tax rate to 25 per cent for all companies. In June the Turnbull government passed laws to reduce personal income tax, phased in over seven years, by enough to slow the rate of increase in bracket creep. The estimated cost to revenue was $144bn. The LDP package would cut taxes by $623 billion over a three-year period.

“Smokers pay for the negative consequences of their habit many times over through exorbitant taxes. Smoking primarily hurts the smoker, and when drinking generates harm, it is primarily the drinker who is hurt,” he added.

“Such a large reduction in taxes should be coupled with an even greater reduction in Commonwealth Government spending. The Liberal Democrats have costed policies to do just that,” he said.

“Given the magnitude and scale of the proposed change there is also substantial uncertainty around the behaviour responses,” the PBO said. The PBO assumed a ‘taxable income elasticity’ of 0.2, which implies a 1 percentage point cut in income tax increases revenue by 0.2 per cent.

International evidence shows a 1 percentage point tax cut lifts taxable income by between 0.4 and 0.7 per cent, where the response is greatest among high earners, who have most scope to avoid tax.

Senator Leyonhjelm has previously asked the PBO to cost abolishing subsidies to universities and vocationally education and training to zero, alongside dramatic reductions to foreign aid and welfare.

The Bill would also abolish the major bank levy, the luxury car tax, and wine equalisation tax.