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Henry Tax Review is an opportunity to lower high costs of tax, says Deloitte


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Australia's Future Tax System Review (AFTSR) to be released on Sunday by the Federal Government offers the opportunity to increase Australia’s prosperity by lowering the high costs of taxation, according to a brief issued to its clients by professional services firm, Deloitte. The firm also released details of their response and spokespeople for next Sunday’s announcement.

Henry Ergas, Senior Economic Adviser, Deloitte Economics and co-author of the brief, said lowering the cost of taxation is desirable in its own right, but all the more important as Australia faces the challenges of globalisation and of an ageing society.

“An efficient tax system would equalise the marginal excess burden across different taxes. An important objective of tax reform is to reduce reliance on taxes with high marginal efficiency costs, and shift that reliance to taxes with relatively low efficiency costs,” Mr Ergas said.

The Deloitte client brief ‘Australia’s future tax system review: What are the issues? An economic perspective’ discusses some of the main economic issues that have been raised in the tax reform debate. It also examines some of the areas likely to be the subject of reform proposals, and considers some of the possible implications of these changes.

Deloitte makes these observations in the brief:

  • Australia’s income tax system is less progressive than it looks, and there is a good case for further flattening Australia’s personal income tax system. There is also a case for shifting reliance from income taxes to taxes on consumption
  • The interaction of welfare payments with the tax system can result in high effective marginal tax rates and lead to a double efficiency loss. The current system may be more complicated than it needs to be, with a large number of different benefits and tax payments, with different eligibility and abatement rules
  • High levels of excise taxes are often favoured because of their ability to raise revenue. This is not a sustainable rationale, however, when the GST offers an efficient alternative. Current levels of taxation on tobacco, alcohol and gambling may impose relatively high efficiency costs
  • Any reform of the taxation of retirement savings must proceed with great caution, as an effective system of retirement savings must be characterised by a high degree of predictability and stability, as it is seeking to provide the right incentives for decisions that are very long-term in character
  • While there could be efficiency gains from a resource rent tax, these are by no means certain, and ensuring such a tax increases efficiency requires a number of difficult conditions to be met
  • There is a strong economic case for further improvements in tax administration and reducing compliance costs.

The economic brief is available from the Deloitte Henry Review website.

Deloitte response to the Australia's Future Tax System Review (AFTSR)

Deloitte will have a team of Tax partners available for comment this coming Sunday (2 May 2010) when the Government releases the Australia's Future Tax System Review (AFTSR).

WEB SITE: Follow us on the Deloitte Henry Review website.
TWITTER: Keep up to date with Deloitte’s view on Twitter by following us.
EMAIL LIST: Join the Deloitte tax email list.

MEDIA CONTACTS: The Deloitte Corporate Affairs and Communications team is available to assist with media enquiries. Contact:

Petros Kosmopoulos 0407 000 926 Tax/all issues
Vessa Playfair 0419 267 676 Tax/all issues
Jane Kneebone 0416 148 845 Tax, SMEs
Karina Randall 0414 823 712 Tax/ E&R issues
Louise Denver 0414 889 857 Tax/FS/superannuation
Anna Brown 0419 214 913 Industry issues

 

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Contacts

Name:
Henry Ergas
Company:
Deloitte Australia
Job Title:
Senior Economic Adviser
Phone:
Tel: +61 2 6263 7188, Mobile +61 (0) 419 239 710
Email
hergas@deloitte.com.au

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