Ideas@TheCentre
Say ‘no’ to taxes on the busy and the stupid
As the end of the tax year approaches, Australian taxpayers can look forward, once again, to negotiating the labyrinth of tax deductions, unless they can afford to pay an accountant to do it for them.
In fact, about three-quarters of Australian taxpayers do offload their tax affairs, more than in any other country bar Italy.
We mainly use accountants to squeeze the most out of the arbitrary work-related deductions. We make about $32 billion of personal tax deductions each year, more than half of which are work-related (self-education, certain travel costs, union fees, depreciation of the home computer, etc).
Accountants are apparently doing too good job, spurring the ATO to send more than 100,000 letters to taxpayers reminding them to keep to the rules.
Here’s an idea. Abolish all deductions and use the extra revenue to cut income tax rates. For obvious reasons, tax deductions are in effect a tax on the busy, the poor, and the stupid because all tax rates must be higher as a consequence.
Assuming taxpayers claiming deductions pay a marginal average income tax rate of about 40%, government could make an extra $6 billion or so by canning them. Provided all the money was used to cut income tax rates – reducing, say, the 15% marginal tax rate to 12% – all taxpayers would get a tax cut, and work incentives would get better too.
Even those people who would be worse off financially might still like the idea as they gain freedom from shoe-boxes of receipts, accountants’ fees, or copious hours of reading the Tax Pack. Wages would increase in occupations where employees are currently burdened with additional expenses, or employers would simply pay the costs instead.
The Gillard government is already proposing to give taxpayers a ‘standard’ $500 tax deduction, which will eradicate some of the complexity and paperwork. But surely having a lower tax rate is better than the puerile pleasure of ticking a box marked ‘deduction’?
Adam Creighton is a Research Fellow at The Centre for Independent Studies.
