TAX FILES
The future of tax in Australia STEPHEN HEATH, WALLMANS LAWYERS
I
t has been a source of little comfort to me to inspect the "Worldometer Coronavirus stats" website over the last 9 months; often to appease boredom in the early hours of the morning when struggling to sleep during March and April in particular. As I write, the United States of America is said to have suffered 16,543,687 cases of Corona virus infection and Australia 28,024. Notwithstanding the larger population, an average American is 50 more times likely to contract the virus than the average Australian. A case of “the tyranny of distance” as Professor Geoffrey Blainey once wrote? Alternatively, perhaps explicable by the fact that most Australians live on quarter acre blocks and can afford to buy hand sanitiser? Far from being an expert on the matter, the discrepancy between the American experience and Australian experience does give cause to ponder matters such as the relative quality of our institutions and the trust reposed by Australian society at large in those institutions. One might predict that institutions such as law enforcement, the Reserve Bank, the health system and the education system will not suffer from lack of relevance in the uncertain times ahead. The COVID response across Australia does suggest our society is more willing to follow and trust Government than one might have predicted and is likely to reinforce a strong belief in the quality of our health system. That then raises the spectre of the capacity of our taxation system to manage the obvious challenge of spiralling Government budget deficits as well as the question of the efficacy of our taxation policy settings.
STATISTICS Perhaps, surprisingly, Australia is not such a highly taxing country in relative terms; 28.7% total taxation revenue compared to OECD average in 2018: 33.8% (total tax revenue as a percentage
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of GDP). However, when one unpacks what makes up the taxation revenues of the 37 OECD reporting nations, Australia is very much an outlier (all rankings determined as a percentage of GDP in 2018): • seventh lowest in goods and services tax collections; • seventh highest in personal income tax collections; • lowest in social security contributions; mention is rarely made of this form of revenue raising but of the 37 OECD countries only Australia and New Zealand do not raise compulsory payments to Government to secure future contingent social security benefits; • third highest in corporate tax collections; • fourth highest in payroll tax; • tenth highest in taxing property. • [Source: Revenue Statistics – OECD Countries Comparative Tables]. Other information of interest is as follows: 1. In 1901-02, Commonwealth, State and local Government revenues were only 6.3% of national GDP. By 1998-99 that percentage had increased to 30% [Source: ABS Australian Taxation during the first 100 years of Federation]. 2. In the 2020-21 income year, the 37% personal income tax rate will apply to taxable income in the $120,000 - $180,000 band. The 45% top rate cuts in at taxable income exceeding $180,000. By 2024-25, the 37% rate will be replaced by a 30% rate for taxable income in the $120,000 $200,000 band with the 45% rate retained for taxable income exceeding $200,000 (all rates cited not including the 2% Medicare levy). 3. Currently, the $180,000 threshold for the highest tax rate in Australia “cuts in” at only 2.2 times the average Australian wage. By comparison, in the United States of America it is 8 times, in Japan it is 8.7 times and in the United Kingdom (a welfare state?) 4.1 times.
History tells us that as life in western society becomes more sophisticated and as the general populous lives longer and enjoys more wealth, overall tax rates increase. What then of the future of tax policy in Australia in the years to come? At some point, one must expect the belt to be tightened and therefore ongoing expenditure initiatives, JobKeeper and JobSeeker for example, will need to be tapered off. On the revenue collection side, one would need to be optimistic to think the economy will be capable of performing all the “heavy lifting”. If the rest of the world is any guide and gleaning whatever one can from what Australian Governments are currently thinking, one might predict trends towards: 1. a higher rate and more broadly based GST; 2. a reduction / elimination of stamp duty and payroll tax; 3. a broader and more uniform land tax system; 4. little pressure on increasing personal income tax rates and further pressure to elongate and flatten the income tax rating bands; 5. downward pressure on corporate tax rates but more pressure on foreign multi-national companies to pay more tax; 6. some discussion about what is referred to above as “social security contributions”. What then of the impact of the Coronavirus on tax policy? As commented above, Australian experience does suggest we have a more homogenous society than we might have thought and that our people will follow our leadership in times of national emergency. That suggests, for a Government with sufficient political capital, an increase in the GST would be capable of being “sold”. It also suggests considerable value and trust in our health system. That can only suggest political and electorate support for increasing aged care and health expenditure. An increase to the Medicare rate might not be surprising. National emergencies also accelerate the
