Chapter in Saunders, P. (ed) (2006), Taxploitation: The Case for Income Tax Reform, CIS Readings 11, Centre for Independent Studies, Sydney.
Australia’s increasingly irrational income tax system is riddled with distortions and disincentive effects. “There are so many special allowances, exemptions, credits, offsets and write-offs that tax law has become almost indecipherable, and gross amounts of money and time get spent trying to reduce liability to tax. Most really-high earners are paying a lower rate of tax than workers earning little more than average income. Retirement savings are viciously taxed, and because tax brackets are not indexed to inflation, the total tax-take increases year by year without anybody even realizing it,” says Peter Saunders.
The government is happy to make electorally popular tax cuts when the budget allows, but sees little political advantage in a more fundamental restructuring of the income tax system. High income taxes undermine national prosperity. ‘Because the threshold at which people start to pay tax is well below subsistence income, people are taxed before they have earned enough to keep body and soul together.’
‘The interaction of tax and welfare creates dispiritingly high “effective marginal tax rates” which deter people on welfare from looking for work and penalise low-wage families whenever they try to increase their take-home pay.’
Outside of the federal government there are mounting demands that something radical needs to be done to tackle these problems. Taxploitation: The Case for Income Tax Reform examines the options and demonstrates that radical reform of Australia’s tax system is urgently needed and long overdue.
The authors: Peter Burn is National Senior Adviser, Australian Industry Group, Lauchlan Chipman is Professor Emeritus, University of Wollongong and CQU, Sinclair Davidson is Associate Professor, RMIT University, Terry Dwyer is a Consultant and Visiting Fellow, ANU, John Humphreys is an Independent Policy Analyst, Barry Maley is a Senior Fellow, CIS, Andrew Norton is a Research Fellow, CIS, Alex Robson is a Lecturer in Economics, ANU, Peter Saundersis Social Research Director, CIS, Geoffrey de Q. Walker is Professor Emeritus, UQ, and Barrister-at-law