15 November 2009
The Henry tax review has a once-in-a-generation opportunity to reform a tax system that favours the wealthy, said the Australian Council of Social Service in a report released today.
“All Australians should pay their fair share of tax to fund essential community services and the needs of an ageing population,” said Clare Martin, CEO, Australian Council of Social Service.
“Tax should be based on someone’s ability to pay rather than smart tax advice.
“Higher income earners should not be able to dodge the tax office by hiding behind tax shelters and loopholes.
“Cracking down on tax breaks on capital gains, super contributions and private companies and trusts would mean more revenue for the services used by everyone in the community, such as schools, hospitals and housing.
“Australia needs a tax system that is efficient, equitable and where everyone contributes to pay for the future needs of the community.
“The Henry review has a once-in-a-generation chance to tackle the complexities in the tax system correct imbalances that favour the top earners. Currently the top 10% of earners receive more than 60% of all income from dividends and capital gains.”
If these loopholes were closed, more revenue could be collected for the future needs of the community, especially the health care costs of an ageing population. Treasury has estimated that governments will need an extra $40 billion a year in 40 years time to pay for existing health and aged care services and pensions.
“Tax avoidance should not be the major factor in investment and workforce participation decisions. The global financial crisis should have taught us about the dangers of a tax system that encourages people to go heavily in debt to invest in property.”
Australia is the eighth lowest taxing country in the OECD. The problem is not that Governments tax too much, but that they tax unfairly and inefficiently.
Key benchmarks for reform
ACOSS has released a paper outlining the key benchmarks for an equitable tax system to be put to the Henry tax panel. These include:
- removing the 50% discount for capital gains
- replacing tax breaks for super contributions with a simple Government Co-contribution that favours low and middle income earners
- removing opportunities to shelter income in private companies and trusts.
ACOSS encourages the Henry tax review to look at innovative solutions such as standard tax rates for investment incomes and extending the ‘deeming’ system for pensioners to the income tax system.
This should be done in ways that increase the share of tax paid by high income earners, who receive the lion’s share of investment income.
Tax avoidance: how it can be done
A taxpayer on $200,000 can avoid the 45% tax rate and end up paying at the same rate as an average worker or even less by:
- investing in shares or property financed by debt, since capital gains are taxed at half the standard marginal rate of 45%, and they can also claim deductions for interest payments against their wages
- sacrificing part of their salary for a superannuation contribution, they can reduce their tax rate to 15%
-
sheltering income in a private company they can reduce their tax rate to 30% and they can reduce it lower still by splitting income with their partner though a private trust.
Read the full paper here.
Media Contact: Clare Cameron, ACOSS – 0419 626 155