Tax 231 Written Assessment
With Australians obliged to pay not less than 125 varied taxes every year, there is no argument that their tax burden is indeed heavy. The Australian federal government levies 99 of these taxes (including 67 agricultural taxes), the States administer 25 of these levies while local governments are in charge of 1 council rates. It is difficult to determine the exact number of taxes that Australians pay, but what is for certain that it is higher than these estimates. This is especially the case because the concern of statistical agencies is purely with the classification of revenue as opposed to counting the administrative or legal systems by which they are raised – individual taxes. The estimates traditionally consider equivalent taxes that are levied by different States in Australia as one tax rather than treating them as eight different taxes. This translates that businesses or individual with operations across more than a single jurisdiction in Australia are subjected to separate equivalent taxes counted as one tax by relevant authorities. This is despite the fact that the separate taxes are different in terms of rates, thresholds as well as exemptions. In this regard, it can be argued that Australians are made to pay in excess of 160 varied state taxes (not considering local government rates) along with at least 259 taxes nationally (with exception of local government rates).
Inefficient and Inequitable Australian Tax System
The uncertainty of the exact number of taxes in the Australian Tax System is problematic itself in the sense that it brings about ambiguity in distinguishing when a tax compliance to the federal government represent a distinct tax or is part of a comprehensive tax. In addition, tax payers in Australia constantly grapple with the uncertainty as to whether a payment represents a tax instead of a fee for service.
It is high time that significant changes were effected on the Australian Taxation System. The Australian government has for a long pursued taxation principles based on economic theory. However, there is need to appreciate the changing times and thus there should a rethinking of the way firms and households interact with the tax system in the present and future economic realities so as to realize efficient and equitable outcome in the Australian society in general. The reality is that Australian social demographics have undergone significant changes over the years but the tax laws are still playing catch up. There has been a gradual demographic shift resulting in an older society that is bound to be even much older a decade from today. The demographic shift is a significant consideration that was overlooked by the 1975 Asprey report into taxation. At the time, baby boomers (those born between 1946 and 1964) were youthful and thus the young had to be given greater consideration when devising taxation laws. With the current older population, a different form of tax system is necessary to fit the prevailing demographic disequilibrium.
In light of the aging Australian population, much of the tax laws need to consider on how to fund the increasing pensions going forth. An ageing population translates it more pensioners along with an increased transfer bill from the disability pension and from the age pension. It is evident that health is becoming a great concern for many Australians as compared to previous years. It is also an open secret that most key areas of government expenditure are bound to expand due to more fiscal demand. There is need for a tax system with the capacity to meet these growing demands. Though the principle remains has to remain the same, the virtue that there are altered underlying socio-economic conditions renders it different and necessitates a newer more efficient and equitable tax system for the Australian population. A newer Australian tax system ought to address the considerably different types of tax bases i.e. capital, labour, goods and services because their relative significance will change along with the changing population structure.
The increase in fiscal demand basically implies that we will have to pay more for the virtue that we are living longer. This calls for tax laws that are consistent with superannuation, where progressive tax contributions such as income tax should be required of Australians. However, lower rates are crucial considering a rebate linked with it as well as reductions in earning tax while benefits are exempted from taxation. This is an expenditure tax approach to people’s superannuation savings where taxpayers are only taxed once. The taxation on earnings remains very small, which would be an internally consistent fair tax regime.
The Australian tax system is currently blind to the reality that there is need to explore ways of having its population work for an extended period of time. Doing this will provide a solution to the fiscal demand challenge, because, if Australians are able to have longer working lives, it would protect the country’s labour income base from shrinking rapidly in addition to generating a larger corresponding taxation collected from that base. Much focus is yet to be afforded to the incentive impacts i.e. to what degree taxation and transfer, availability of transfers would have on Australian labour force participation. This is crucial in light of the fact that full labour participation from both men and women is a key ingredient of functioning economies in the 21st century.
Most of the current Australian tax laws as also out of touch with the increasing globalization phenomenon. At the time of releasing the 1975 Asprey Report, globalization had not set in as much and majority of the capital markets were predominantly national markets. Over the years, however, there have been a paradigm shift in the sense that those national capital markets have mostly transformed into global markets. This translates that there are now all kind of issues pertaining to jurisdictions applicable to tax as well as all sorts of concerns relating to incentives in terms of international migration of capital. These issues and concerns were not present some 30 years ago when the present tax system was adopted. If we consider the environment, for example, the Australian and the global population at large 30 years was concerns about vehicle exhausts, but – as relates to public sector intervention – the environment itself was much of high profile concern like it is at present. As such, environmental taxes today are more significant relative to the time when Asprey was reporting.
Taking the globalization phenomenon into consideration, it would be reasonable to significantly lower such taxes on capital as corporate tax which can move. This will avoid chasing capital away to the greater good of all Australians. This is essential due to the fact that more capital in the country would translate in higher wages for the workers. This basically means that chasing capital away from the country following the imposing of higher taxes is indeed a bad idea. A body of theory portends that the eventual incidence of taxes on the capital income ultimately rests with the labour force, culminating in precisely that sort of system in the long run. Considering that we are part and parcel of the global scenario and the fact our country neither no longer enjoys its previous captive national capital base, capital income nor capital stock, it necessitates implementation of lower capital taxes. This is not to mean zero, but reasonably lower rates.
In the same breadth, the rapid technological changes over the year have made for significant difference between 1975 and today. For instance, while the previous generations were all about a pencil and paper, the current generation has shifted almost every aspect of its life on the Internet. This renders it necessary to revisit, in a more holistic way, the concept of simplifying the tax system so as to fully take advantage of technology in administration of the entire Australian Tax System.
Conclusion
It is clear that the current Australian Tax System, though lauded by some as among the best in the word, falls short of being defined a fully efficient and equitable tax regime. The tax system is currently a political tool used to make attractive campaign promises which are never fulfilled by government. The system itself is rather complex to be easily by most average Australian taxpayers and the administrative bodies seem overwhelmed. There is need for a well-designed tax regime that would take into consideration a broad variety of trade-offs with clarity of the positioning of those trade-offs in light of the prevailing socio-economic environment as well the future.
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