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Taxing Times Must Not Hold Back Income Tax Reform
Tax reform will be hollow without significant personal income tax reform, argues a new report being released on Wednesday.
In The Unfinished Business of Australian Income Tax Reform, CIS Senior Fellow Robert Carling says the reform agenda for personal income tax should be to cut marginal tax rates; implement automatic indexation of thresholds for inflation; scale back the myriad selective tax breaks; and simplify.
‘The global financial crisis has strengthened the case for taxation reform’ he says.
‘Boosting productivity growth should be a top priority and personal income tax reforms of the right kind will support that objective.’
A new marginal rate scale with a top rate of 35% and most taxpayers facing a rate of 27% would be a step in the right direction.
Policymakers must also give serious consideration to implementing a dual system, where labour income is subject to a graduated scale and capital income would be taxed at a flat rate.
Personal income tax thresholds should also be subject to full and automatic indexation for inflation so that governments can no longer rely on the stealth tax of bracket creep.
‘Despite decades of change, serious flaws remain in the personal income tax system. It’s time for real reform, even if implementation has to be phased over several years.’
These personal income tax reforms will reduce government revenue; however, that can be offset by gains to revenue from cutting back on selective tax breaks and by imposing a tight rein on government spending.
‘While the exact contents of the government’s tax/transfer review remain unclear, there is already a clear case for personal income tax reform.’
Robert Carling is a Senior Fellow at the Centre for Independent Studies. He is available for comment. The report is available at http://www.
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