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The Forum > Article Comments > A comprehensive income tax base > Comments

A comprehensive income tax base : Comments

By John Freebairn, published 15/12/2009

Taxation reform should involve the removal of many special exemptions and concessions to taxable income.

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We could start by going to the Tax Act and deleting the phrase "the advancement of religion" and making the Holy Rollers pay their share so then maybe we could all save a bit on tax. All other exemptions, for education, charity, sport and research would remain, and should be in such a scenario policed strictly for abuse by a church seeking to define its operation as something else to avoid tax.
Posted by Inner-Sydney based transsexual, indigent outcast progeny of merchant family, Tuesday, 15 December 2009 12:18:19 PM
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The writer seems determined to repeat some of the worst features of the tax system since WW2, namely the taxation of interest and capital gains.

Both these items are different from wages, as they are denominated in a depreciating currency. The fair taxation of both is to tax on the basis of real gain, not nominal gain. Is it any surprise that because it is impossible for an ordinary taxpayer to find a bank account that gives a real after tax return, that no-one saves, and everyone borrows, with the result that after 60 years we have a gross foreign debt of 1200 billion? If you remove tax deductions for expenses in earning income, people won't participate in those occupations, or even move to some other country where they can keep enough to save for retirement.

The real need is not for a new tax system. It is to find some way of stopping governments spending. One forward step which is followed in a few prudent countries is to make the legislators personally responsible for any deficit they vote for.
Posted by plerdsus, Tuesday, 15 December 2009 1:52:19 PM
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So why is it we can't simply have just one tax, that being a transaction tax.

My understanding of this is that each and every electronic transaction made attrats a flat tax of say, 2%.

Just imagine how much tax would be raised if 2% on every cent spent was collected.

What is so wrong with this and why can't it work?
Posted by rehctub, Tuesday, 15 December 2009 9:04:10 PM
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*The fair taxation of both is to tax on the basis of real gain, not nominal gain. Is it any surprise that because it is impossible for an ordinary taxpayer to find a bank account that gives a real after tax return, that no-one saves, and everyone borrows, with the result that after 60 years we have a gross foreign debt of 1200 billion?*

Ah, so very true! At last, somebody who understands our economy
and one of its major problems.
Posted by Yabby, Tuesday, 15 December 2009 10:10:27 PM
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The argument to exempt interest from tax is a tempting one. But the fewer tax shelters there are, the more bizarre the distortions become. We might see a range of new "interest paying" tax shelters which simply convert ordinary income to tax-free interest, any which way they can.

Better just to remove all the distortions and most of the beaurocracy, flatten the rate - and deduct CPI losses on deposits before calculating the taxable interest.

As overall tax collected is lowered (but revenue is the same, because collection cost is much lower), the tax on interest would drop from your marginal rate to the flat rate, discounting inflation.

Suppose we had a flat tax rate, without brackets, and with a negative-income-tax offset. NIT can replace both the tax-free threshold and much of the welfare system. The cost savings would be vast, allowing greatly lower taxes, a more efficient economy, a tighter sharper government, less scope for tax-break lobbying in Canberra, and a wealthier society all round.

A tough sell to legislate, with the whole tax minimisation industry screaming blue murder and special interest groups whipping up scare campaigns. But if the numbers are crunched effectively and voters can see they'll clearly be richer and the state won't be poorer, it might work.
Posted by sceptic, Tuesday, 15 December 2009 11:11:17 PM
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Further information on Negative Income Tax is here: http://www.cis.org.au/Policy/aut2001/polaut01-4.htm

The simplest model is, every taxpayer gets a flat payment (say, $15,000) and then everyone pays a flat percentage of their total income in tax (say, 30 per cent).

A person earning nothing ends up with $10,500 after tax ($0 + $15,000 less $4,500 tax on the $15K), which is close to the current Newstart allowance. A person on $35,000 breaks even ($35K + $15K - $15K tax on the $50K). Anyone above that still gets the $15K payment but pays 30 per cent on everything.

Advantages include closing down much of Centrelink, much of the Tax Office, and much of the lobby group presence in Canberra; everyone has an incentive to work because the reward portion is the same, minimum wages can be relaxed and left to labour market forces, etc, etc.
Posted by sceptic, Wednesday, 16 December 2009 12:19:20 AM
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