Genuine tax reform : a simpler and broader system

27 October 2008

ACOSS says the Government should close shelters and loopholes in the income tax system – such as low tax rates for high income earners receiving capital gains and superannuation contributions – to build a fairer and more economically efficient tax system.

ACOSS’ submission to the Henry tax and transfer review says genuine reform of Australia’s tax system is not mainly about tax rates, but should lay the foundations to meet the nation’s future social and economic needs.

“The Government should reform Australia’s tax system to close tax shelters and iron out the inconsistencies. Reform is not about another round of income tax cuts. Currently some forms of income are taxed less than others to the benefit of high income earners,” said Gregor Macfie, ACOSS.

“A broad and efficient tax system would strengthen Australia’s economy in the long term and mean Governments would have more funds for essential community services like health care, schools and housing.”

Australia is the eighth lowest taxing country of the 30 wealthiest nations. With an ageing population greater investment in health, dental and aged care services will be needed.

Australia’s unfair and complex social security payment structure also needs reform. Payments are not only too low, but people in similar situations receive different levels of payment. For example, people with a disability on NewStart Allowance receive $55 a week less than those on the Disability Support Pension. This discourages people on pensions from seeking work and leaves people on NewStart Allowance with very low levels of income. </FONT>< P>

Key areas for reform:

  • Capital income tax rates should be closer to tax rates on other incomes and negative gearing restricted. Low CGT rates are unfair because capital incomes are very highly concentrated among high income earners with the top 10% of individuals receiving 64% of all capital gains. They are also economically harmful and contributed to overheating the housing market and creating excessive debt and speculative investment.
  • Superannuation contributions from employers are taxed at a flat rate of 15%. So while a high income earner saves 31.5 cents per dollar invested, a low income earner saves just 1.5 cents. This is unfair and wasteful because high income earners are more likely to save without incentives.
  • Termination payments such as golden handshakes are taxed at flat rates of 15% or 30% which disproportionately benefit high income earners.
  • Concessions for mature aged people – need reform to restore equity between the tax treatment of mature age people and other taxpayers. Only one in five people aged 65 years and over pays tax, and a mature age couple does not pay tax until their combined income reaches almost $50,000. This makes it difficult for Governments to afford increases in pensions for those worst off.
  • The social security system needs an overhaul to make it fairer and simpler. Payments should be based on an Australian Minimum Standard of Living set at levels high enough for singles and couples to avoid poverty. The base rate would be supplemented by payments for extra costs such as rents, cost of disability and caring. The system should also encourage workforce participation and training.

Read the full submission here

Media Contact: Clare Cameron : 0419 626 155