Business Daily Media

Post-coronavirus, we'll need a working tax system, not more taxes and not higher rates

  • Written by Neil Warren, Emeritus Professor of Taxation, UNSW
Post-coronavirus, we'll need a working tax system, not more taxes and not higher rates

Oliver Wendell Holmes Jr famously observed in 1927 that “taxes are what we pay for civilised society, including the chance to insure[1]”.

Whilst tax as a price for civilised society is well understood, less appreciated is the second part of his observation – that tax provides a chance to insure against a crisis.

As nations emerge from the COVID-19 crisis with policies unthinkable just six months ago, and associated debts previously unimaginable, it is becoming clear that while some were well insured and able to respond rapidly, most were underinsured, exposing their civilisations to previously unthinkable risks.

In many ways Australia is an exemplar in its use of taxation to provide the “chance to insure”. It funds Medicare; the Pharmaceuticals Benefit Scheme; the Higher Education Loan Program; the Superannuation Guarantee Charge and contingency-based welfare payments.

COVID has exposed the weakness in our system

COVID-19 has exposed how underinsured Australia is in other ways. It will have to borrow heavily to protect the economy, but for many years won’t be able to impose the extra taxes that will be needed to pay down the debt.

Introducing new taxes or increasing existing tax rates would threaten what will be a fragile recovery.

The only realistic option is to review what Australia gives away, such as tax concessions,[2] and what it fails to collect, as measured by the so-called tax gap[3].

Read more: Did you cheat on your taxes? Here's why your days may be numbered[4]

The tax gap is the difference between the amount the Tax Office collects and what we would have collected if every taxpayer was fully compliant with tax law.

In 2016-17, the Commonwealth raised A$389 billion[5] in taxes, intentionally gave away an estimated $166 billion[6] and unintentionally failed to collect a further $30-35 billion[7] that the Tax Office knows of.

Mapping out a pathway to winding back government debt and funding programs to better insure our civilised society has to begin with ensuring those who are not currently carrying their fair share of the legislated tax burden do so through reforms to reduce non-compliance.

Many of us aren’t paying the tax we should

The Tax Office conservatively estimates that non-compliance for the taxes it has so far examined is equivalent to more than 8%[8] of the tax revenue it collected in 2015-16.

The Treasury also estimates that tax concessions in 2017-18 were equivalent to 41%[9] of Commonwealth government revenue, or more than 9% of GDP (although it cautions against adding estimates together as reducing one concession can affect the use of others).

Given the scale of the Commonwealth response to COVID-19, the government will need additional tax revenues of around 2.5% of GDP (about $50 billion) for some years.

This should not prove insurmountable. In comparison with other advanced economies, Australia is a relative low taxer with a total tax burden of 28.6% of GDP in 2017-18, well below the OECD average of about 34.5%.

There’s revenue going begging

The tax gap estimates show billions can be raised from integrity measures such as addressing overclaimed work-related expenses ($3 billion), unreported cash wages ($1 billion) unreported rental property net income ($2 billion) and unreported business income ($2-3 billion).

There’s much more available from reducing tax concessions, removing the personal tax-free threshold, winding back retirement savings concessions, and broadening the goods and service tax (especially from fully taxing the food that is already partially taxed).

Lower income groups affected by the changes should be compensated by improved targeting of expenditure programs.

Read more: Cabinet papers 1998-99: how the GST became unstoppable[10]

Right now we’ve a near-universal welfare system and a targeted tax system.

The way out of our present problems is to make the tax system more universal and the welfare system more targeted.

New taxes and higher rates should be resisted, especially if made more palatable by more concessions.

What we are proposing would not only result in a tax system that was simpler and harder to escape – but one that was capable of funding the insurance we will need to preserve our society into the future

There’s no reason to think there won’t be another pandemic exposing the weaknesses in our tax system that remain.

References

  1. ^ including the chance to insure (www.worldlii.org)
  2. ^ tax concessions, (treasury.gov.au)
  3. ^ tax gap (www.ato.gov.au)
  4. ^ Did you cheat on your taxes? Here's why your days may be numbered (theconversation.com)
  5. ^ A$389 billion (www.abs.gov.au)
  6. ^ $166 billion (treasury.gov.au)
  7. ^ $30-35 billion (www.ato.gov.au)
  8. ^ 8% (www.ato.gov.au)
  9. ^ 41% (treasury.gov.au)
  10. ^ Cabinet papers 1998-99: how the GST became unstoppable (theconversation.com)

Authors: Neil Warren, Emeritus Professor of Taxation, UNSW

Read more https://theconversation.com/post-coronavirus-well-need-a-working-tax-system-not-more-taxes-and-not-higher-rates-137232

Business Today

Why A Champagne Hamper Is A Great Corporate Gift

Suppose you’re a business owner looking for the best corporate gift to give your employees or clients. Perhaps, it could be a giveaway during special occasions, such as the company’s anniversary, holidays, or corporate eve...

Why growing small businesses are rejecting traditional loans to stay afloat

Australian small businesses look for alternatives to fund growth A record number of Australian small businesses are ditching traditional bank loans to fund growth and generate cash flow. “Around 75% of businesses who come ...

The most common mistakes active travellers make that put their lives in danger

PIONEERING scale-up Advanced Mobility Analytics Group (AMAG) is calling for the phasing out of historic methods that rely on crash data for managing pedestrian risk on our roads with more powerful, proactive methods enabled by...

6 charts shows key role firearms makers play in America’s gun culture

Sales of handguns have exploded in recent years. AP Photo/Sue OgrockiAmericans have blamed many culprits, from mental illness to inadequate security, for the tragic mass shootings that are occurring with increasing frequency in sc...

3 in 4 fundraisers have experienced sexual harassment on the job – often because of inappropriate behavior from donors

Sexual harassment is a common workplace hazard for nonprofit fundraisers.fizkes/iStock/Getty Images PlusWhile the #MeToo movement that raised public awareness of sexual harassment is making fewer headlines than it did in 2017 and ...

Cathay Pacific 2021 Sustainability Report

New commitments in carbon neutrality and diversity, and supporting the Hong Kong community during the pandemicThe Cathay Pacific Group has released its annual Sustainable Development Report that addresses its commitment and prog...

Business Daily Media Business Development

Why A Champagne Hamper Is A Great Corporate Gift

Suppose you’re a business owner looking for the best corporate gift to give your employees or clients. Perhaps, it could be a giveaway during special occasions, such as the company’s...

Business Daily Media - avatar Business Daily Media

there's a vital way to reduce it that everyone overlooks – raise productivity

Inflation has become one of the great issues of our times. The UK’s is the highest in the G7, weighing in at 9% a year according to the most recent figures on consumer price inflation...

David McMillan, Professor in Finance, University of Stirling - avatar David McMillan, Professor in Finance, University of Stirling

Is it wrong to steal from large corporations? A philosopher debates the ethics

Mike_shots / ShutterstockIf you ask someone whether it’s okay to steal, chances are most people would say no. This absolutist approach – stealing is wrong, no matter what –...

Emma Borg, Director of the Reading Centre for Cognition Research & Professor of Philosophy, University of Reading - avatar Emma Borg, Director of the Reading Centre for Cognition Research & Professor of Philosophy, University of Reading

how a day off work affects the economy

Shutterstock/Ian FrancisThe Queen’s platinum jubilee will be celebrated across the UK with parades, picnics and street parties. But perhaps the most popular event planned to mark her 7...

Edward Thomas Jones, Lecturer in Economics, Bangor University - avatar Edward Thomas Jones, Lecturer in Economics, Bangor University

Why growing small businesses are rejecting traditional loans to stay afloat

Australian small businesses look for alternatives to fund growth A record number of Australian small businesses are ditching traditional bank loans to fund growth and generate cash flow...

Optipay CEO Angus Sedgwick - avatar Optipay CEO Angus Sedgwick

The most common mistakes active travellers make that put their lives in danger

PIONEERING scale-up Advanced Mobility Analytics Group (AMAG) is calling for the phasing out of historic methods that rely on crash data for managing pedestrian risk on our roads with mor...

Simon Washington, AMAG CEO - avatar Simon Washington, AMAG CEO



NewsServices.com

Content & Technology Connecting Global Audiences

More Information - Less Opinion