Work and Remuneration
John Freebairn
Community Tax Forum
Canberra, 26 Feb., 2009
Potential reforms to achieve:
• Greater incentives and rewards from work. To
reduce problems of high EMTRs associated with
means testing of social security and child care,
and clumsy tax clawbacks
• Equity, both horizontal and vertical, across
different employees receiving different
remuneration packages
• Simplicity. Over 70% use a tax agent and claim
> $1 billion a year in fees. Plus own time
Reform issues include:
• Interface of tax, social security, child care, and
potentially maternity allowance
• Tax base or taxable sum. Broaden base by
removing special exemptions and deductions,
and use revenue to fund lower tax rates
• Taxable unit. Suggest stay with the individual as
it favours second income earner with higher
labour supply responses
• Tax rate schedule. Be explicit and include LITO,
SATO and Medicare levy
Package of Broader Base and
Lower Rates
• Remove exemptions and treat a $ as a $, or all
forms as wages
–
–
–
–
Fringe benefits concessions
Lump sum payments
Remote area allowances
Part of a broader package involving capital gains and
superannuation (considered in later sessions)
• Revenue gained to fund lower rates
• Arguably the current ad hoc set of work related
expenses also can be deleted with funds for
lower tax rates or a flat tax credit for all.
Package of Broader Base and
Lower Rates
• The pay-off
– Greater simplicity and cost savings
– More robust future revenue
– Some efficiency gains
• Greater neutrality in remuneration and choice of expenditure
• Less waste in compliance costs
• Equity effects. Relative to the current position
– Some winners (lower rates > lost deductions)
– Some losers (lost deductions > lower rates)
– Most only minor changes with the package
• Many precedents, eg 1985, 2000 business tax
Tax Rate Scale
• The public spin is a simple tax rate schedule
with five brackets and rates.
• When one adds in LITO and SATO, and the
Medicare levy (which only partially funds health
expenditure), we have a much more complicated
and opaque rate schedule.
• Suggest just one simple tax rate schedule that
includes tax offsets and additional levies
• Automatic indexation of tax brackets. Use of
AWE would maintain tax share of GDP
Big Issues to be Discussed by
Other Panel Members include:
• Simplification of the social security, family
allowances and child care support
systems, individually, but preferably as
part of an overall package
• Better integration of the tax system with
the social security and child care systems
• Use of a common inflation indexation
factor for all systems