Giving the baker a bigger slice of pie: tax reform to empower tax payers

We all hate taxes. This is a healthy state of affairs. It is the only restraint on government growth. It is the principal check on wasteful government spending. We are entitled to restrain government’s passion to spend our incomes and to make more of our own choices.

But we also hate taxes for other reasons.

They are too complicated. The agonies of GST compliance have been front-page news for more than two years. The agonies of income tax compliance have been with us for decades.

They are unfair. High marginal tax rates cut in at ridiculously low income levels – levels far lower than other developed countries.

They are inefficient. Collection costs are high and the disincentive effects are heavy – many of our taxes discourage productive economic activity.

It would be interesting to speculate how the tax system came to be such a mess with so many brilliant minds applied to it for so many years. But it is more fruitful to consider how matters could be improved.

Four Ways to Make Tax/Life Better

The tax system is a monster. Apart from the biblical proportions of the Income Tax Act and its Old Testament punitive regime, there are dozens of other taxes at Commonwealth, State and local levels of government. They are all complex and entrenched.

To propose a reform of the whole system and have it implemented would require, in ascending order of difficulty, many learned papers, an economic summit and agreement among the States.

These are not on any agenda now. So we propose just four changes to improve matters that are well within the reasonable range,:

• Restrain any further growth in the total real tax take;
• Raise and index the income tax brackets;
• Reduce taxes on transactions apart from GST;
• Ease the tax on savings;
• Restrain Total Tax in Real terms.

This is not an unworthy aim. Cutting the cake differently should not exclude a bigger slice for those who bake it. We should be allowed to dispose of as much of our income privately as possible. That is one of the fundamentals of a free and vital society.

Also, at over 30% of national income, our tax take is by no means low. Only a restricted group of developed countries have a higher take.