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

The remaining stamp duties, taxes on some insurance transactions and fake user pays charges such as levies on property developments are all taxes that inhibit economic activity. Many of these taxes are at State government level, requiring compensation from the federal level. Stamp duties raised $7.3 billion in 1990/00. Extension of the GST would help offset the cost.

Ease the Tax on Savings

There is a curious ambivalence towards savings in our tax system.

On the one hand, government directs employers to pay increasing amounts into superannuation funds (i.e. savings) for their workers. Presumably we are collectively too short sighted to do this for ourselves. Or maybe, for most of us, the public pension is a better option than saving for retirement. In any case, the super levy is equivalent to a special purpose tax on business, which indirectly will come out of the wages pool.

On the other hand, government has conducted serial raids on the super funds through taxes on contributions, taxes on fund income and surcharges on anyone foolish enough to slip into higher tax brackets. Superannuation taxes raised $3.2 billion in 1999/00.

So we are being levied (taxed) to save partly so that government can tax and spend those savings now.

Given the increasing burden of the aged population, it would be prudent to maximise superannuation savings. It might also improve our dismal personal savings rate. Such savings will anyway be taxed in good time as the benefits are taken.

Government might start by reducing the tax on contributions, which would have immediate effects on the financial flow to super funds and might encourage higher contributions. Simply reversing the trend to expropriation would boost confidence in this form of saving. It would reallocate money to private saving from government spending.

If such a measure were introduced in steps it could be accommodated in the restraint on taxation proposed above.

Conclusion

We can reduce the tax slice of the economic cake and redistribute it at the same time. There are strong grounds for doing so. It requires two things. Government resolve to do it and a legislated program applying for several years to make sure it is done.