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

And this proposal does not cut taxes. Governments, and particularly the Commonwealth government, would budget not to increase the real tax take.

What this implies is that the real level of government spending can be maintained but, if new programs are adopted, savings must be found in existing programs. Governments and lobbyists would be forced to prioritise. Adjustments would be made from year to year to ensure the target was observed.

What it also implies is that the individual gets to keep the benefits of any real growth in the economy. In other words, the private sector share of the national income increases as the economy grows. This might amount to $5-6 billion a year. Over the past decades the reverse has been happening. The government share of growth has increased consistently at the expense of the private sector.

Adjust the Income Tax

If everyone hates taxes, they loathe the income tax. It all seems so onerous and so arbitrary. It would be a universal blessing to simplify this tax but the Government seems incapable of doing so. There is shorter-term option.

Our income tax level is high by almost any standard. One way to ease public discontent would be to lighten the burden and remove the continuous automatic theft of income that is known as bracket creep. The latter occurs when rising nominal incomes move taxpayers into higher tax brackets even though their real incomes have increased at a slower rate.

This could be alleviated in two ways:

Shift up the tax brackets over a three-year period so that they approximate more closely the real tax rates applying at the start of the 1980s.

At the same time, index the rates to the CPI so that they are annually adjusted to take account of inflation.

These changes would be consistent with the preceding proposal and it should be possible to mesh them so as to avoid shocks to the overall revenue. They would require resolve over a period of years but would send healthy signals to income earners and government spenders.

Remove Transaction Taxes

We are plagued with a host of relatively tiny taxes that were imposed by governments desperately seeking creative new ways to extract more from reluctant taxpayers.

Many of these were taxes on transactions. The largest is now the GST. Owing to the depredations of the Greens and the Democrats, the GST is far from universal or consistent but it is the closest we have to a neutral indirect tax and should be either extended to cover currently exempt categories or, at the very least, left alone.

There are other taxes that we could remove. Some progress has already been made by the abolition of the BAD and FID, absurd taxes on movements of money. But there are further taxes which could sensibly go.