Whilst I disagree with the vast majority of Ken Henry's report as being too "inside the box" and just an extension of existing policy I think it is laughable that just two and half recommendations were taken up...before the election. Unfortunately I can't see the opposition's response being any better as they will both be working from the same badly designed report.
Henry comments that evenue raising should be concentrated on four robust and efficient broad-based taxes:
1) personal income, assessed on a more comprehensive base;
The review does not go far enough though. There should be no deductions for wage and salary income and lower marginal rates for all. Emphasis should be on a big increase in the tax free threshold as suggested by Henry. Deductions for investments should only relate to untaxed income from that investment class. EDIT: Capital gains tax should only be on real gains (indexed to inflation). Ultimately, income taxes (including CGT) should be done away with all together (as should middle class welfare) with government services supported purely by consumption/corporate taxes.
With the exception of a basic safety net, tax should not play a role in wealth redistribution nor should it be possible to gain advantage over others through tax minimisation schemes with no underlying economic merit.
2) business income, designed to support economic growth;
Where company profit is distributed after tax (franked), it should be tax free in the hands of the shareholder. This would preserve the integrity of the corporate tax base.
3) economic rents from natural resources and land;
Natural resources belong to us all so it's only fair that the people get a fair return from their exploitation. The extent to which this is reflected by a RRT on top of company tax is a subject for further debate in itself. The level of a RRT should however reflect long term objectives of continued resource extraction.
If the tax base for income/corporate/consumption taxes are robust, why tax land ?
That's double dipping as the money used to purchase that land has allready been taxed.
Come to think of it, it's triple dipping as we all ready pay what is effectively a land tax to local government for their services.
In order of taxes this should be first and cover all consumable items. Investment no and that includes rent. Land should only be subject to a consumption tax to the extent real value is added (via subdivision for example).
There, you have it. The Smith Review.
To whom do I send the invoice ?