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The Forum > Article Comments > The economic case for tax reform > Comments

The economic case for tax reform : Comments

By Peter Jonson, published 8/3/2006

The solution to unemployment - which is worse than has been portrayed - lies in radical reform to tax and welfare.

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It's intersting that OLO has chosen to post two articles on tax reform in succession- i can only assume it was to contrast and compare but it seems that the two articles are actually quite similar in the results they pursue.

There is no doubt that the tax system is far too complicated and that possible deductions are extremely wide. The article rightly points out that billions could be recovered from eliminating deductions. Furthermore a simpler system would not justify such high involvement of accountants and lawyers in tax matters.

I did disagree with the 'maximum 30%' contention. There is no doubt that 48% kicks in FAR too early at $65k. However it should kick in nevertheless-say at over 250k. An ideal system would lift the tax free threshold to 10k, install 15% up to 40k, 25% up to 65k and then 35% right up to 250k. Simple numbers make for simple sollutions in this case.

I also believe a system based on the above numbers would ultimately reward the middle class for work, encourage those on benefits to work, provide incentive to top earners to stay and facilitate growth in small business (providing the company rate was fixed at 30%).
Posted by wre, Wednesday, 8 March 2006 9:30:12 AM
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I generally agree with your proposal, Peter. However, I think you left out an important item from your list; Raise the tax free threshold to a level equal to the median adult income, say around $26,000 and index it to the CPI.
Posted by TheBootstrapper, Wednesday, 8 March 2006 9:43:17 AM
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I generally agree with your article Peter, except for the 30% Capital Gains Tax. The fairest CGT was the system introduced by the Hawke government where the cost base was indexed to inflation and CGT levied at the individuals marginal rate. The system was a little cumbersome but pretty simple to calculate with spreadsheet software.

The flat 30% CGT sounds simple but severely overtaxes those that sell long term investments. Even though inflation has dropped, it is still up to 3.5% and this rate compounds significantly over a 10 to 15 year period.

A better solution would be a 30% rate with cost base indexation linked to the inflation rate.
Posted by Rob88, Wednesday, 8 March 2006 11:54:13 AM
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If we are going to index tax scales (such as the tax free threshold) then it should be indexed to wages growth not CPI growth.
Posted by Terje, Wednesday, 8 March 2006 2:34:19 PM
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Peter, your article is the best exposition of the case for tax reform that I've seen. I'm mystified that the Treasurer seems unable to grasp the case.

I've worked with Ross, Vince and Peter S, and agree with you that there's a wide consensus on this issue. While such tax reform is not the only issue in regard to increasing employment opportunities, it would make a major contribution.
Posted by Faustino, Wednesday, 8 March 2006 3:04:31 PM
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What a relief to see some logical analysis on what stifles our motivation to be more productive ,instead of the usual leftist diatribe of telling us to achieve victim status and thus sustain ourselves in mediocrity.

Income tax on working individuals in 1951 was 11%.There was no GST or the miriad of other taxes that were need to support our present socialists state.We built the Snowy Mts Scheme and railways on the smell of a few tax dollars.Even with todays technoloy we have no money for infrastructure,health etc,all because we have become weak and feeble minded.

I don't hear the Labor Party entering the debate since they are too busy destroying themselves in factional brawls.There is no competition for the Coalition and thus the Australian public will suffer from lack of competition.
Posted by Arjay, Wednesday, 8 March 2006 9:26:28 PM
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