In Australia, five taxes make up 97% of our tax revenue, so what are these five and does the remaining 3% revenue provide an opportunity?
The following five taxes equate for 97% of revenue:
- Personal Income Tax: 50%
- Company Income Tax: 20%
- GST: 15%
- Excise and Customs Duty: 10%
- Superannuation Tax: 2%
Everything else – Fringe Benefits Tax, Luxury Car Tax, Wine Equalisation Tax, Petroleum Resource Rent Tax, Major Bank Levy, Agricultural Levies and other taxes account for an almost immaterial 3% of tax revenue.
On one hand, this raises concerns about how narrow our tax base is. A narrow tax base can be a vulnerable tax base.
It also raises questions over the efficiency of the tax system. These smaller taxes are often complex and costly to comply with.
But the 3% provides an opportunity to use the tax system to achieve social good, and at the same time to reduce compliance costs for businesses. Here are some ideas:
Fringe Benefits Tax
Use FBT to encourage businesses to spend in their local economies and support local businesses. Don’t tax them for stimulating the economy. Why not provide a threshold for spending, say $2,000 per employee per year, where FBT does not apply? Maintain FBT on cars and salary packaged arrangements as an integrity measure, but otherwise try and get business out of this unduly complex tax.
Luxury Car Tax
Change the focus of this tax. Luxury Car Tax was introduced to protect the local car manufacturing industry and the price of the car was the key factor. The original policy reason for the tax is no longer valid. Reposition the tax so that it is based solely on the environmental impact of the car. Encourage consumers to purchase better cars that are better for the environment.
Wine Equalisation Tax
Many wine producers are hurting from the combination of bushfires and COVID-19 travel restrictions. Now is the time to reform the Wine Equalisation Tax that places a cashflow and financial burden on so many wine producers. Focus the tax on types of alcoholic products that contribute to irresponsible drinking. Use price to influence consumer behaviour and improve social outcomes.
There are many other small taxes that are part of the 3%. We need a discussion on how to improve, or remove, these taxes. Let’s reform these taxes, give them a clear policy objective that achieves a social good, and reduce the compliance cost burden on business.