Australian taxes are too low. These reforms could plug the revenue hole

As Australian media focused on the passing of Queen Elizabeth II, some potentially important comments from Treasurer Jim Chalmers were understated.

Chalmers told ABC Radio last week that he intended to focus his first budget in October on delivering on election promises before tackling ‘structural challenges’ to the economy in his second budget of the year. next. And because he considers most fast-growing budget items – such as health care, elderly care and the NDIS – as “untouchable”, some “politically sensitive fiscal and fiscal measures may need to be confronted”.

It is the biggest indication yet that the Federal Labor Party may be cautiously deviating from its “small target” campaign platform and seriously considering raising taxes.

And while many Australians may not want to hear the hard truth, it’s time.

Australian taxes are just too low

Australia remains one of the lowest taxed countries in the OECD. Our federal and state revenues are 5.8% lower as a percentage of GDP than the average for developed countries.

Despite this, Australians have benefited from increased social spending in recent years, putting the balance on the national credit card. The resulting debt is manageable for now, but it will hamper our long-term ambitions.

Even centre-right stalwart Paul Kelly and a slew of leading economists claimed over the weekend that “Australia is on a path to bigger government sanctioned by public demand,” which requires “an overall increase in the tax burden”.

The pressure to correct this imbalance will only increase, with a national income summit scheduled by the Australia Institute in early October.

Put a cap on it

So which taxes should Labor raise or widen? It’s a shame that, in opposition, Anthony Albanese killed off some of Labour’s best tax proposals – and endorsed the worst in the coalition – for fear of scaring off the electorate.

This is where Chalmers has to get creative. I have argued before that it could partially offset the highly unequal third stage tax cuts by increasing the top tax bracket. Likewise, on blatant tax deductions like negative debt and the capital gains tax cut, there are less than perfect but politically acceptable workarounds.

For example, instead of scrapping these deductions altogether, Labor could put caps on their use.

In 2015, Albanese himself successfully passed a motion at the National Labor Conference, calling for a “buffet tax” – a minimum rate of 35% on total income for those earning more than $300,000 a year, then costing about $2.5 billion a year. . He foolishly ruled out reviving it in a January interview, but his lack of attention could make it a “non-essential promise,” Howard-style.

Conversely, Labor could impose individual caps on the amount one can deduct for each tax item, or cap the number of assets to which write-offs can be applied. For example, one could set a maximum number of houses that one can negatively gear. To err on the side of generosity, say four properties – to keep recipients out of the top tier of federal MPs in Crikey’s List of owners.

This would allow politicians to continue to flatter investment property owners while hitting those with obscene portfolios.

That’s not optimal, but at least property hoarders, like this recent radio caller who owns 238 homes, would pay their fair share.

Overeating inequality

Superannuation accounts are another item ripe for capping. The super remains, despite recent reforms, generously undertaxed, allowing a wealthy few to overcharge their incomes – most of which they will leave to their heirs. As Crikey’s Cam Wilson recently reported that the 32 largest self-directed super funds in 2020 were worth more than $100 million each.

Putting a cap on the total amount one can hold in super would force excess funds into higher taxed accounts or assets. The proposal is so uncontroversial that even the super lobby supports a cap of $5 million.

This capping approach is not ideal. The revenue earned will be far less than that obtained by simply closing the tax loopholes. And housing concessions will continue to inflate prices, even in a market of small real estate portfolios.

But since its shock election defeat in 2019, Labor has shown a deep fear of alienating the more affluent, but not lewd. Part of that was overreaction, but Australia’s inflated asset markets pose tricky election dynamics.

Capping concessions would allow Chalmers to recoup much-needed revenue from lagging goals, reduce wealth inequality and assure voters that only the wealthiest will pay. Targeting the wealthy is the easiest fruit. It would also allow Albanese to save face by not backtracking on major promises.

Labor will have to consider such reforms sooner or later, lest the only cap is on the quality of Australia’s hospitals and care homes for the elderly.

This article was first published by Crikey.