Tax reform: where to focus?

by John Daley

Presented to the John Curtin Institute of Public Policy, Tuesday 10 July

There are lots of proposals for tax reform. This presentation to the John Curtin Institute of Public Policy identifies what problems we are trying to solve with tax reform. And it then compares how much different proposals would help the economy, repair budgets, reduce inequality, and promote housing affordability.

Property tax reform is long overdue, with significant economic payoffs. It is no surprise there is near unanimity amongst economists – but not politicians – that stamp duties should be reduced and general property taxes raised.

Negative gearing and capital gains tax distort investment, cost the Federal budget a lot of money, and worsen wealth inequality.  Superannuation tax breaks have similar problems, although they have been wound back substantially over the last few years. Ending cash refunds for franking credits on corporate dividends would also help, although it’s economically a “second best” to further reform of superannuation tax breaks.

Reforms to taxation of investments might create more space to reduce income taxes. The effect of income tax cuts on inequality depends on how they are distributed. Reforms to GST could be progressive, and could create space to reduce income taxes, but are likely to involve much more political pain than increasing taxation on investments.

Corporate tax reform is more controversial amongst economists, although most agree it’s worth working through the technical reforms to ensure that international corporates pay their fair share of tax somewhere. Resource rent taxes are still on the agenda, although there are significant issues with their technical design.

Download the presentation