Australian Election 2022: Why tax reforms should be a hot topic - Kalkine Media

January 10, 2022 11:25 AM AEDT | By Manisha
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Highlights

  • The most significant forms of taxation in Australia include Income Tax, Capital Gains Tax, and Goods and Services Tax.
  • Global forums such as the OECD and the IMF have suggested that comparatively heavy taxation on incomes relative to consumption makes Australia’s tax mix less growth-friendly.
  • Some significant changes would contribute to strengthening the country’s financial base for faster economic growth.

Time and again, there have been calls for major reforms to the Australian tax system so as to avert a fiscal nightmare. With general elections scheduled to take place in a few months, the chorus for tax reforms is only getting louder.

This article will weigh up if it is high time for the national tax debate to take centre stage in the 2022 Australian federal election. We will reflect upon the present framework of the nation’s tax system, recent alarming reports from global economic bodies and the proposed reforms.

Existing Taxation System in Australia

At present, the Commonwealth and state governments have imposed a mix of direct and indirect taxes on Australians.

The most significant forms of taxation include Income Tax, Capital Gains Tax, and Goods and Services Tax (GST). The other taxes and levies include Medicare Levy and Medicare Levy Surcharge, Fringe Benefits Tax (FBT), Superannuation Tax and Luxury Car Tax.

Is there an urgency to bring in tax reforms?

Australia’s fiscal system is gaining spotlight at international forums as well. Global forums are suggesting major reforms to its tax system to strengthen the national economy and reduce its economic burden. Most of the proposed reforms point towards introducing higher taxes on capital gains, as well as a surging GST. 

The Organization for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have also given their recommendations for bringing in progressive reforms to the nation’s tax system.

Well-researched amendments would play a part in building a sustainable financial base for Australia’s economic growth.

Related Read: 2022: A major year for Australia with elections around the corner

Tax

Image source: © Maigi | Megapixl.com

 

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Economic Snapshot for Australia by OECD

In its most recent report on Australia’s tax system, OECD remarked, “Comparatively heavy taxation on incomes relative to consumption makes the tax mix less growth-friendly.”

OECD stated that there is a need to impose less heavier taxes on income. Rather more consumption and land taxes should be introduced to allow the necessary labour mobility amid the pandemic in order to boost growth. Also, to reduce pro-cyclicality of state budgets, taxes on property transactions should be replaced with a recurrent land tax.

The report also said, “The high corporate tax rates for large businesses should be aligned with those on SMEs since a two-rate system risks distorting how firms are structured and how they behave around the threshold between the two rates. Once the recovery is firmly in place, there is scope to increase the Goods and Services Tax, while offsetting the regressive impacts for low-income households.”

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IMF’s longstanding recommendation to improve Australia’s economic state

As part of ‘Australia: Staff Concluding Statement of the 2021 Article IV Discussions,’ the International Monetary Fund reiterated that Australia must strengthen indirect taxes and lower its relatively high direct taxes. The country should decrease the corporate income tax burden and increase its reliability on goods and services tax (GST) revenue to lighten its economic burden.

IMF stated, “Transitioning from a housing transfer stamp duty to a general land tax would improve efficiency by providing a more stable revenue source for states and territories, while promoting labor mobility. Such reforms could be complemented by reducing structural incentives for leveraged investment by households, including in residential real estate.

Bottom Line

The recommendations made by the global bodies indicate that Australia can fast-track the fortification of its economic pillars, if suggested reforms are implemented in the existing tax system. It would escalate its COVID-19 recovery plan and provide the country with firm monetary support.

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