Governments are 'socialising' tax revenue gains and 'capitalising' tax revenue losses

A less volatile and risky alternative broad tax base is consumption.

This would share risks between taxpayers and government in proportion to the tax rate. The treatment of losses would not be an issue. The income tax bias against saving would disappear. Inflation adjustment issues would disappear. The tax instrument could be either a comprehensive GST or a comprehensive direct expenditure tax, which would tax income when it is spent.

Australia already has a GST, (which does allow refunds for net losses) but its base is increasingly leaky.

Increased reliance on the GST should involve three structural reforms.

First, more online trading (notably for imports) should be made GST-liable. If other countries (eg, the UK and Canada) can have dollar transaction thresholds as low as $20 or so, why on earth is Australia unable to reduce the current per transaction threshold of $1,000? This is a fast-growing avenue for avoidance.

Second, the GST base should be broadened to cover currently-exempted food, health and education. The additional billions raised from this reform should be used, first, to require the States to abolish the remaining inefficient transactions taxes (notably stamp duties on commercial property) included in the original GST deal between the Commonwealth and the States. Insurance stamp duties should be abolished as well.

Third, with a comprehensive GST base, a higher rate to finance cuts in income taxes should be considered.

Federal Labor refuses point-blank to broaden the GST tax base or raise its rate. The Henry Review of our tax system was barred from considering GST reform. Most recently, in rejecting sensible suggestions by Nick Greiner, both the Prime Minister and the Finance Minister have re-affirmed this position.

There are numerous arguments for shifting our tax system away from income taxes towards comprehensive consumption taxes. Fair sharing of revenue risk is just another.

Especially if governments persist with heavy reliance on volatile income taxes, they should not make large new spending plans, destined permanently to add to Budget expenses, until they are sure of the revenues needed to pay for them.

This means carefully counting their revenue chickens after they've hatched, not before the capacity of the hens to lay enough eggs has even been established.