Tax opportunities for state governments
The potential tax opportunities for Australian state governments to broaden their tax bases can be illustrated by comparing the revenue raised by the current tax system with that of a sensible tax system (the tax gap). A number of tax enquiries have set out the general outline of a sensible tax structure. For examples, see the Asprey Report1 and the Draft White Paper,2 and more recently, the UK’s Mirrlees Review3 and Australia’s Henry Review.4 Such a sensible tax system allows the government to raise revenue and redistribute in the most efficient, fair and simple way. Under a sensible tax system it is necessary to spread the revenue base over a number of taxes, because the higher the tax rate on a particular tax, the higher the incentive to get around the tax rules. Also, there are limited ways you can redistribute if there is only one tax (eg, only a GST), so income and wealth taxes are needed. However, having 125 different Australian Government taxes produces excessive complexity and costs to the community. It is apparent from the above reviews that a sensible tax structure consists of far fewer and broader taxes that need to work in harmony together (as well as integrate with the social security benefit). A sensible tax structure should be generally aligned with comprehensive tax bases and the following package of seven taxes.
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