A tax system that doesn’t work

Costello has tinkered with personal tax rates, but has he failed to make the real reform business is crying out for?

It’s great to see that 1 July marks another step in the reduction of personal income tax rates, along with a number of other changes to various aspects of commercial tax law.  

But is it enough? Not really. Australia needs a much more concerted effort at improving our tax system.

We have to start understanding the clear difference between tinkering with rates, and genuine meaningful reform that improves economic efficiency, enhances business competitiveness, and encourages community enterprise.

At present, Australia has been using the windfall dividends of our resources and general economic boom to tinker with the system. The Federal Government has, for several years in a row, proudly been changing tax rates – for example, lowering the levies by a percentage point or so, or raising the threshold at which a higher rate begins. The “simplified tax” system for entrepreneurs has been modified, as has our superannuation laws, among others.

But this is not genuine tax reform. The essential complexity and confusion in our tax system remains.

Try filling in a tax return as a private individual, without the help of a tax agent or accountant. If you earn any income outside of wages or salary, or have any substantial deductions to claim, good luck!

Tax Pack alone, which aims to provide a simplified system, is full of dozens of sections and sub-sections. And if you’re a self-employed businessperson, forget it. Ever tried to work out the STS, or capital gains tax, or to understand how fringe benefits tax works, without consulting a professional adviser?

This is not a system that works well. If you need to employ a third party simply to understand your tax obligations, then the system is far too complex to be worthwhile.

If Peter Costello really wants to claim the mantle as a reformist leader capable of reinvigorating a tired government, then he needs to grasp this issue. So far, he’s squibbed the opportunity over the last 11 years.

What do you think? What tax reform would you like to see?

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