Real tax reform: a love letter to Ken Henry

With that in mind I would suggest you look at the following.

Accepting that labour creates the wealth of the country, there should be a distinction between taxes on labour (earned income) and capital (unearned income.) Tax capital heavily and labour lightly.

A salary greater than double the average wage - the average weekly wage was $1,217 per week for the December 2008 quarter - would seem an approximation for all class divisions. Capital and those who are its managers are on one side and workers on the other.

Those with salary and wages below double the average wage are workers. Those with salary and wages greater than this are managers for capital. Tax salary and wages up to double the average wage lightly and all other income (salary and wages greater than that amount, unearned income like dividends and interest) and gains, heavily.

There are some further suggestions which would assist in implementing such a major shift in taxation.

First, think about some sort of Haig-Simons base for taxing income. This would treat all gains as income.

The tax value method was a half way house to that and could be re-examined despite the objections of big business and the parasites who feed off them like large accountancy and law firms and peak bodies.

Second, abolish all tax expenditures.

Your own department estimates that these cost at a minimum about $73 billion year. Let all such expenditures (if justified) be delivered as direct grants and subject to the usual scrutiny of such programs.

Tax expenditures include benefits of about $30 billion a year to superannuation funds and superannuants (future and present) in various guises.

Capping those benefits (for example somehow limiting it to those earning salary and wages up to double the average wage) so they remove the rich from the equation would save billions. In reality the rich are likely to invest in their retirement in any event, irrespective of whether tax concessions exist or not.

Other tax benefits to go could include the outrageous capital gains concession which provides billions in benefits to the holders of capital, in the main those who are very very well off.