Tax reform necessary to curb reliance on commodity windfalls, IPA says

The Institute of Public Accountants has called on the government to engage in responsible budgeting through a sustainable and stable tax mix, warning policymakers against relying on commodity windfalls to prop up public finances.

IPA chief executive Andrew Conway said the government should focus on shifting the tax mix away from distortionary taxes and towards more efficient ones.

“If governments want sustainable budgets without punishing growth, reform should start with a clear hierarchy: minimise the most distortionary taxes, broaden efficient bases, and simplify administration,” he said.

“Australia needs reform that is practical, pro-growth and workable for small and medium businesses – the part of the economy that absorbs the compliance burden and feels the cashflow squeeze first.”

Ahead of the budget, the IPA urged the federal and state governments to work together on holistic tax mix reform. Ideally, they said, this would include phasing out stamp duty, winding back payroll tax and ending threshold creep.

It also called for greater simplicity in the tax system to cut compliance costs for small businesses, and for tax thresholds to be indexed to inflation so that revenue increases were achieved “by choice, not by stealth.”

The IPA added that a tax system that weighed too heavily on hiring and property transactions made it difficult for employers to expand and minimised worker mobility.

Economists have found that stamp duty was particularly damaging to the economy as it made it expensive to move houses. These costs could deter an empty-nester from downsizing or a professional from moving for a new job.

With these issues in mind, the IPA said the government should shift away from "damaging" taxes and towards stable, broad-based revenue.

“The IPA’s message is simple: the tax mix matters as much as the tax take. Windfalls might look convenient in the forward estimates, but they are a poor substitute for a deliberate strategy to raise revenue with the least economic damage,” Conway added.

“When governments rely on volatile, high-cost taxes to create credible or responsible budget outcomes, then households and businesses pay twice – once through their taxes and again through weaker investment, lower wages growth and reduced productivity growth.”