Finding extra revenue in the tax system? Where?

I think I have a right to say this as I gave up a high paid job as a tax advisor and spent three years working in the Treasury, on the Henry Review and in the office of the Assistant Treasurer and most of the time I tried to convince people to remove tax give aways to raise revenue (What happened to your packaged laptops??? He he he…)

All based on the 2011 Tax Statistics from the ATO…

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So we need another $20 billion a year for changes to education funding and disability funding (since writing this the 2013 MYEFO now suggests we have a structural deficit of around $30 billion) .Rather then digging into portfolio budget statement to find savings, commentators are going to the revenue system. They say remove negative gearing, which would see a massive decrease in capital gains tax and stamp duties. They say increase company taxes, which would just decrease income tax as most company tax is claimed back by shareholders as imputation credits. They say raise the GST (rate or base? who cares) which, forgetting it is a state tax, would tax the most vulnerable as well as the most affluent and that it would probably be linked to a massive reduction in individual tax rates as was done when the GST was introduced.

Lets get real and admit if you really want to raise taxes by $20 billion a year the place to do it is in the individual tax system. And lets raise it on the richest Australians – to steal from the Occupy movement – the 1%. If you are earning more than $280,000, you are in the top 1% of tax paying individuals and you and your fellow 1%ers are paying $23 billion in income taxes, at an effective tax rate of 41%, making up 18% of all the individual taxes paid. But we want another $20 billion from you. To raise the additional $20 billion we just need to have an effective tax rate on these 1%ers of around 76%. That’s not the marginal rate, that is the average rate on every dollar they earn. Someone earning $300k with be left with about $73k after tax…

OK. We cannot get close to raising $20 billion by only going after the 1%ers. What about just those on the highest marginal tax bracket – earning more than $180,000? Unfortunately, that only includes under 3% of tax paying individuals. And we would need to increase their effective tax rate from 38% to 60% – a more than 50% tax increase – a hundred times more than the 0.5% levy the government is proposing from 1 July 2014.

OK. Still not going to get there with taxing just the $180kers. Lets try the top 10% of tax paying individuals – or anyone earning more $105,000. The effective tax rate these 10% of tax paying individuals are paying is currently 34%. To get our extra $20 billion we need to raise this to 44%. That’s a very big jump…

Lets be honest… Can we just admit we can’t get an extra $20 billion (or the $30 billion now needed) just by increasing revenue? We can’t fund these new expenditures without cutting expenditures… so lets stop pretending we can and lets tell our leaders to stop spending our money on things we don’t NEED… not things we don’t want but things we don’t NEED… please.

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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