Money
Issue No. 28 - April/May 2006
Aiming for a good tax system
by John Rawson
The recently announced Warbuton-Hendy international comparison of Australian taxes and the operation of the multilayered personal income tax regime is indeed welcome news.
Considerable speculation has surrounded the potential for further substantive tax reform including reducing the top personal marginal tax rate and making the Australian corporate tax system more internationally competitive.
While we await the outcome of the review it seems timely to consider what the attributes of a fairer tax system are.
The Treasurer has indicated that it was his goal to make the Australian tax system as simple and fair as possible. However, many would argue recent reforms have in fact made the Australian tax system more complex and inequitable.
In my opinion the three key criteria and objectives of a tax system are that it operates fairly, with neutrality and with simplicity.
Any proposed reform should meet these criteria or alter the tax system such that it does become fairer, more neutral and simpler. By way of example this means that:
- people in similar situations be taxed similarly and the effect of Australia’s progressive tax system scales is that those with a greater capacity to pay tax shoulder a larger tax burden. (fairness)
- the tax system should not create tax benefits for choosing one type of income over another, or one business structure over another. (neutrality)
- the tax system should be simple both in terms of ease of understanding of the tax law and ease of administration. (simplicity)
Finding an acceptable balance between these three criteria is difficult and there are always many other factors to consider. However, few could argue that the current Australian tax system or recent reforms satisfactorily meet all three criteria.
“The wisdom of man never yet contrived a system of taxation that would operate with perfect equality.” — Andrew Jackson (7t...
