Australia is the eighth-lowest taxing country among 39 OECD nations (at 39.4% of GDP), ahead of only Mexico, Chile, the Czech Republic, Ireland, the United States, Switzerland and Korea.
While the government predicts a small surplus in its budget for 2019-20, pressures on the budget will build as the cost of providing the essential services increases. Health, aged care and disability services alone are expected to cost $21 billion higher per year in a decade’s time.
This is not the time for a tax cut ‘auction’. In the recent past, we have seen how eight successive income tax cuts created pressure for harsh cutbacks in essential services and social security payments in the 2014 budget. An arbitrary cap on tax revenue of 23.9% of Gross Domestic Product, as proposed by the government, would repeat this mistake, as would legislated income tax cuts for people earning over $90,000 a year, at a cost of at least $20 billion per year by 2024. These unnecessary and unaffordable tax cuts should be withdrawn.
At the same time, major gaps in the income tax system enable people with high incomes to avoid contributing their fair share remain in place, including:
- The use of private trusts and companies to avoid tax;
- Negative gearing and the 50% Capital Gains Tax ‘discount’;
- Avoidance of tax by companies operating across national borders.
People are rightly concerned about their ability to afford health and aged care services as they grow older. User charges- from medical specialist fees to nursing home deposits, have been creeping upwards. Future governments cannot afford to provide the good quality, affordable health and aged care services needed by older people as long as only 16% of people over 64 years of age pays income tax. Over-generous tax breaks for superannuation after retirement (no tax on fund earnings), dividend imputation ‘refunds’, and weaknesses in the Medicare Levy must be reformed and access to essential health services guaranteed.
Weaknesses in our tax system have contributed to our world-beating levels of home prices and household debt. Although average home prices have fallen by around 5% off their peak levels in 2017, this is only after increases of 50% over five years and 400% over 25 years. Negative gearing, together with the generous tax breaks for capital gains (a 50% discount), encourage people to go into debt to bet on property prices. Progressively closing these tax shelters would improve fairness, and ease home price increases during a future housing ‘booms’, without jeopardising investment during a housing downturn. A better way to stimulate new affordable housing construction is to invest directly in social housing, coupled with a new private investment incentive to build new homes rented at below-market rate.