2 December 2014
Corporate advisers are calling on the Abbott government to consider taxing the wealthy – by scrapping a raft of concessions available to them – in order to achieve a hike in the GST and lower corporate and personal tax rates.
EY tax partner Glenn Williams told Fairfax Media that the only way the government could afford to deliver significant company tax cuts and personal tax cuts was to raise taxes elsewhere.
There was limited scope to raise the marginal tax rate – people earning more than $180,000 are already expected to pay almost 50 per cent tax on income they earn – but the government could look at removing popular tax breaks that mainly benefited the wealthy, such as dividend imputation, negative gearing and capital gains tax concessions. These tax breaks are used by higher income earners to reduce their marginal tax rate, and thereby pay less tax.
“You can’t go above 50 per cent [income tax for people on the top marginal tax rate] because then there’s a disincentive to work,” he said. “But there’s a general consensus that the tax burden has to fall on those who are more well off.”
Mr Williams, whose comments come ahead of a government paper next week cavassing options for tax reform, said changes to the tax system could not be divorced from cost of living issues. “In terms of personal tax, there’s some work to be do at the lower end of the [tax] bracket, including lowering the threshold [when individuals start paying tax],” he said.
Mr Williams, who advises Australian companies on tax and has been involved in previous debates on tax reform, said despite Tony Abbott’s promise before he got elected not to raise the GST his first term, it was still a possibility for long-term change. Mr Williams said raising the rate and broadening the base would do the government the “least amount of political damage”.
Even the more politically unpalatable areas were up for review in the upcoming tax white paper. He said despite millions of shareholders and self managed super funds relying on franking credits, the dividend imputation system was “out step with the rest of the world” and skewed local investment decisions.
“There’s a question of whether it skews investment in Australia – rather than invest further in capital, companies are incentivised to pay out franked dividends,” he said. “Super funds in particular make investment decisions based on whether they can attract franked dividends.”
Mr Williams also suggested the government might want to look at the concessionary rate of CGT in order to raise more money to fund tax cuts for low- and middle-income Australians. Scrapping negative gearing would be harder to achieve, as the government could not single out property – where the majority of deductions are claimed – and would have to apply the change more broadly.
Grant Thornton’s global head of tax, Francesca Lagerberg, who advised the UK government on tax reform, said reforming the tax system would be “a hard, slow process” for Tony Abbott.
She said the UK tax agency, HMRC, had to bring both the business and the community sector to table. Consultations lasted three years against a background of “scepticism”. “There was a huge amount of consultation and a lot of tradeoffs,” she said.
To get a broader consumption tax, she said the UK government introduced a tax on “sin industries” such as those selling oil and gas, alcohol, cigarettes and fuel.
The Tax Institute’s senior tax counsel, Robert Jeremenko, who was previously an adviser to former treasurer Peter Costello on tax reform, agreed lower-income earnings were worst off under the personal tax system.
“Tax reform can look at ways to address areas in the current system that have become skewed in terms of people’s income levels,” he said. “For example, the burden of personal income tax is increasingly falling on people on average income levels, and the superannuation tax settings do not incentivise lower income earners to contribute their own money to their superannuation savings.”
Mr Jeremenko said people needed to put self interest aside to achieve tax reform. “We all have to move away from a ‘what’s in it for me?’ mentality and instead move towards a ‘how can we reform things to unshackle our potential as a nation?’ mentality,” he said.
He also suggested the government speed up its planned release of the tax reform issues paper so that “we can all advance the national conversation on tax reform”.
Rob Mander, director of tax services for RSM Bird Cameron, said the government had to now find new sources of tax revenue and that may involve the rich having to pay more on their income. “We expect the highest marginal tax rate for individuals to increase by up to 5 per cent as governments deal with this revenue challenge,” he said.
Courtesy of The Age
2 December 2014