Completely plucked and hissing loudly

A discussion paper released by the Henry Review provided a damning statistic of the implicit tax breeding program implicitly adopted by successive governments. Australians already pay at least 125 different taxes each year, with 99 imposed by the rapacious commonwealth, 25 by bungling states and municipal rates by meddling councils.

The prospect of even more taxes at their disposal would be welcomed by governments of all political stripes, especially by those struggling under the weight of heavy structural budget deficits.

On top of the potential abuse of fiscal power that might come from an extension of the taxman’s net, it is highly likely that the additional revenues generated by virtue of broadening tax bases might be dedicated to wasteful government programs, such as flammable pinkbatts or duplicated school halls.

The bitter experience of history suggests that taxpayers cannot rely on the benevolence of political representatives, or other potential restraints such as the power of the ballot box, to keep taxes low. The question then arises as to what should be done?
Ultimately, the key to securing low taxation for prosperity and economic liberty is to restrict access by governments to the tax goose altogether.

In the first instance, this objective may be achieved by a reform process that eliminates the low-­hanging fruit of miscellaneous taxes and charges. As indicated by the Henry Review discussion paper on Australia’s tax architecture, there exist 115 taxes that contribute only 10 per cent of taxation revenue collected by governments.

To ensure that such a program of tax elimination does not impinge on overall fiscal sustainability, it will be necessary to reduce government expenditures by a comparable amount.

Assuming that the 115 nuisance levies are wiped from the taxation landscape, Australia would be left with ten large taxes that currently collect 90 per cent of tax revenues.

The largest of these big ten - the personal income tax - could then be transferred from the commonwealth to the states, in a return to the fiscal situation that existed prior to World War II.

A key advantage of this devolution of taxing power is that states and territories would not only become more accountable to taxpayers and citizens for the spending they undertake, but that the prospect of continuing capital and labour mobility would force states to reduce income tax burdens to retain these precious economic resources.

Another advantage is that the return of state income taxes would halt, if not reverse, the century-­long damaging trend of increasing powers to the distant and less accountable federal bureaucracy.

To further prevent any abuse by governments of their reducing taxing powers, a regime of tax limitation rules - similar to the Colorado Taxpayer Bill of Rights (TABOR) - could be used to limit revenue increases.

According to TABOR style fiscal rules, if governments acquire revenues in excess of the specified inflation, population or income growth limits, then the extra money must be returned back to taxpayers. Numerous studies have shown that such rules are effective in limiting public sector growth.

The weight of submissions tendered to the Henry Review secretariat, numbering over 1,000, amply illustrates that average Australians are feeling completely plucked and are thus hissing more loudly than ever.

The recommendations of the Henry Review final report will say much as to whether the secretariat has heeded these demands for governments to engage in much less plucking in future.