It is clear from the outset that the independent reviews on the Australian Tax system have plenty of common ground. Both agree on land taxes, changes to company tax, road use taxes and the extension of payroll taxes by removing exemptions.
The Henry Ergas Tax Review was commissioned by then Shadow Treasurer, Malcolm Turnbull back in April 2007. The Rudd government followed suit in May 2008 with the budget after the Ergas review finally began in March 08.
Both reviews are now completed and currently gathering dust.
The Rudd government has consistently said it would release the Henry review in early 2010. Most recently, the Treasurer, Wayne Swan has said the review would be released by Budget time.
Both reviews may agree on changes to company taxes but differ on what changes to be made. Ken Henry reckons cutting company tax below 30% but no lower than 25% will be quite beneficial. Henry Ergas believes company tax should be treated as a resource rent tax.
What is currently in the public domain of the Ken Henry Tax Review does not seem to mention income taxes. The Ergas Review as shown above however does suggest a 20% flat income tax1.
Not completely flat, because that would be too hard on low-wage earners. By setting the flat rate at 20 per cent and by retaining a tax-free threshold and also making ”negative income tax payments” to low-income earners, the system would become somewhat progressive but also ”as close to flat as one could reasonably get”.
The Henry review believes mining companies have been treated too generously. It expressed bemusement at the 50 per cent discount applied to income taken in the form of capital gains introduced by John Howard at the start of this decade, noting that income earned from work attracts no such concession. It will recommend either a higher resource rent tax or a switch to a resource profit tax.
The broad principle has received cautious approval from the Minerals Council of Australia. Peter Martin
The Henry review will recommend payroll taxes be extended by withdrawing a range of exemptions as it sees them as pretty harmless.
There are taxes that do genuinely hurt employment, and the review believes they are those that discourage foreign firms from setting up here and staying here.
Payroll tax would stay under the Ergas Review and the exemptions be removed to strengthen state taxing powers and the states would be invited to impose their own income and consumption taxes on top of the Commonwealth’s. States that charged too much would suffer from tax competition. States that charged too little would offer inadequate services. Peter Martin
This is broadly in line with the Garnaut review on carbon trading which says there should be a global system in place and a national scheme can be operated on top of that as well. The Ergas review of Payroll tax suggests the same thing at a national and state level.
Whilst I have not covered everything, as you can see two economists from ideologically opposed sides can broadly agree on many issues. If only it was the same for our parliamentarians and the broader public debate.
If you wish to know more about what is currently in the public domain, check out my sources:-
Peter Martin, what would we do without you?
1 See Essays for more information on Flat Taxes.