Six simple tax reforms plagued by politics

Even before the government’s options paper on tax reform is released later this year, many reforms have been taken off the table, at least before the next election. Here’s the expert view on six.

Broadening or increasing the GST

Some experts say expanding the GST, which is a regressive tax, would unfairly hit middle-income earners and women.

Others say a broader base, not higher rate, would be the best approach.

If done as part of a package of tax reforms, John Freebairn argues increasing the GST could actually boost our standard of living.

Prime Minister Tony Abbott and Treasurer Joe Hockey have said they will not make changes to the GST before the next election, and want the states to take responsibility for reform in this area. This is despite the fact that they could increase the GST without the support of the states.

Fixing the asymmetry between negative gearing and capital gains tax

As Helen Hodgson has explained, negative gearing would be less attractive if the capital gain on the sale of an investment was taxed in full.

The Henry Review recommended reducing the benefit of negative gearing by allowing only a 40% capital gains discount, but this was rejected by then Prime Minister Kevin Rudd.

Antony Ting says negative gearing is not a fair tax policy - particularly when considering the way investment properties are treated.

Dale Boccabella says the best solution would be to quarantine negative gearing so that losses on investment properties couldn’t be used as deductions against other income. But he also thinks abolishing it is preferable.

Prime Minister Tony Abbott has ruled out any changes to negative gearing, arguing to do so would be akin to increasing taxes.

Adopting global measures to prevent tax avoidance by multinationals

When Australia hosted the G20 leaders summit in November last year, it agreed to a number of actions to ensure fairness in the international tax system. The OECD is leading global reforms, arguing unilateral action could harm the global agreement that is required to stop multinationals shifting profits to reduce their tax burden.

Since then, Treasurer Joe Hockey has announced new measures specifically designed to target multinationals using complex schemes to escape paying tax. Experts say the measures lack teeth since they only apply to foreign and not Australian multinationals.

The next set of OECD-led measures to address global tax avoidance are due to be released at this year’s G20 summit in Turkey. The OECD recommendations will be finalised by December.

Taxing trusts as if they were companies

In 1999 the Ralph Review of Business Taxation recommended that trusts be taxed as companies, a move that originally got the support of Treasurer Peter Costello. Political pressure soon saw the government back away from this plan, and despite Joe Hockey showing support for the idea back in 2011, it is not one that has the support of the government.

Dale Boccabella says the taxing of trusts is another anomaly in Australia’s tax system that is unfair. Trusts are commonly used by families with a high income to distribute funds to low-earning family members in order to minimise tax.

Removing concessions on the taxation of super

Most experts agree superannuation tax concessions are unevenly distributed and are in need of reform.

The Financial System Inquiry suggests super tax breaks shouldn’t exceed what someone would get from the age pension.

The Labor Party wants to remove the tax-free concession available to people with annual superannuation incomes from earnings of more than A$75,000, a move it says would raise more than $14 billion over 10 years.

Prime Minister Tony Abbott has ruled out any “adverse changes” to superannuation, including changes to super tax concessions.

Expanding land tax over stamp duty

The Henry tax review argued stamp duties are a highly inefficient tax on land, and that land tax could provide an alternative and more stable source of revenue for the states.

Miranda Stewart says stamp duty is volatile, feeds into house prices (contributing to lack of affordability) and taxes more heavily those people who purchase new housing more often, than those people who don’t.

Unfortunately, says Danika Wright, some states are addicted to stamp duty, making reform in this area highly unlikely.