Political scare campaigns worsen tax reform gridlock, expert says
As the economic reform roundtable approaches, tax expert and author David Montani has said that holistic tax reform would be welcome but unlikely in the current political ‘gridlock.’
National head of technical tax at Grant Thornton, David Montani, told Accounting Times that holistic tax reform was being held back by self-imposed ‘no-go’ zones from each side of politics, stemming from years-long political scare campaigns.
“Both sides of politics have managed to paint themselves into their respective corners because they've been stockpiling dishonest scare campaigns against the other side's policies,” Montani said.
“The coalition has several, like negative gearing, carbon tax, resource taxation. Labor largely has one super-scare weapon, the GST.
“And yet, issues like GST and negative gearing and so many others all need to be a part of the conversation if you're talking about genuine, holistic reform. But each side can't engage in big parts of that conversation, and that's why I say it's self-defeating.”
Economists have warned that without holistic tax reform, Australia’s outsized reliance on income tax coupled with its ageing population would place a growing tax burden on young workers, raising questions about productivity and intergenerational equity.
Over half (51.6 per cent) of Australia’s tax revenue comes from income tax, well above the OECD average of 23.6 per cent. In contrast, its tax take from GST was 14.2 per cent, below the OECD average of 20.75 per cent.
Montani said that this over-reliance on income tax led to perceptions that Australia was a high-taxing country, when it was actually slightly below average by OECD standards.
In 2022, Australia’s total tax take was 29.4 per cent of GDP, compared to the OECD average of 34 per cent.
“The reason it feels like we live in a high taxing country is the over-reliance on income tax, because that's a direct tax. It's in your face. And we rely too little on indirect taxes, and that's mainly GST,” Montani said.
“People's perception is that we're a highly taxed country, therefore they're probably going to be rather resistant to increasing taxes. So that's a political challenge for anyone wanting to raise taxes.”
Montani said that without the option of holistic reform, the major parties were left tinkering around the edges of Australia’s tax system, leading to poor outcomes and disjointed changes.
“A tax system, it's like a jigsaw puzzle. A single piece is almost meaningless, but bring all the pieces together and then a coherent picture forms.”
“You change one piece in a jigsaw puzzle, and now it doesn't fit the picture.
“You have to adjust all the other pieces of the jigsaw puzzle coherently. You can get far better outcomes in redressing the under-taxing of superannuation if you're doing it in combination with redressing the over-reliance on income tax, redressing our under-reliance on consumption taxes, re-dressing perhaps the 50 per cent discount on capital gains.”
While holistic tax reform would be a welcome result following this week’s roundtable, Montani warned that it was unlikely that the major parties would be stepping out of their ‘painted-in’ tax policy corners any time soon.
“Jim Chalmers is going to be sitting at that round-table having those discussions with his feet firmly planted in that painted-in corner.”
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