Less than a year after the establishment of the National Anti-Corruption Commission (NACC), the scale of its work is becoming evident.
The NACC has received thousands of referrals, kicking off more than a dozen preliminary inquiries.
Commissioner Paul Brereton said they’re just getting started.
“I didn’t believe we were beginning in an environment that was devoid of integrity … I still hold to those views, but am chastened by the fact that concurrently with the advent of the commission, we saw a number of significant integrity issues.
Paul Brereton Anti-corruption commissioner recaps the first months of the NACC
“But that’s true of all taxes,” Mr Hamilton said. “The question is not whether a tax is ‘bad’, because all taxes are bad; the question is: how bad? That is an empirical question.
Tax commissioner says 47pc rate fuels tax minimisation
John KehoeEconomics editor
Tax Commissioner Chris Jordan says Australia’s top 47 per cent income tax rate is encouraging people to minimise tax by splitting income through trusts and companies, as former prime minister Paul Keatingargues a rate above 39 per cent is “confiscatory”.
The observations about the government’s high dependence on income tax paid by wage and salary earners from two of Australia’s tax system veterans underlines the need to shift to other taxes to reduce the overreliance on working-age taxpayers, experts said.
Mr Jordan said New Zealand more than a decade ago took “drastic” steps by cutting the top personal rate to 33 per cent (revised up to 39 per cent by Jacinda Ardern) and abolishing work-related deductions.
In contrast in Australia, “with the personal rates we have people do focus on what they can do to split income and try to get taxed at the corporate rate [25 per cent for small companies] rather than individual rates and that has required us to really focus a lot on what’s appropriate”, Mr Jordan said.
“Some have that opportunity, like small businesses that operate in trusts, partnerships.”
“I’m sure most of us in this room like me just get the money taken out of your salary,” he said in response to a question following his final speech to the National Press Club in Canberra on Wednesday.
In an earlier interview with The Australian Financial Review to mark his 80th birthday, Mr Keating said a top marginal rate higher than 39 per cent was “confiscatory” and he backed indexation of the personal tax scales to inflation or wage rises.
“There’s an issue that all societies should have of how much a person’s conscientious efforts and wealth should be delivered to the state,” the former Labor prime minister and treasurer said.
Treasurer Jim Chalmers, who wrote his PhD thesis on Mr Keating, said he respected the former prime minister but had different priorities by giving a tax cut to more middle-income taxpayers.
Scope for tax rate trade-off
“Aspiration isn’t limited to the people who are already doing relatively well,” Dr Chalmers said on Wednesday.
The top 47 per cent rate, including 2 per cent Medicare levy, will apply to incomes above $190,000 from July. All taxpayers will have the bottom rate cut from 19 per cent to 16 per cent.
Former Treasury official Robert Carling said lower marginal tax rates would boost work incentives and small business investment, help attract international talent and discourage tax planning conducted via negative gearing, trusts and incorporation.
“The weight of income tax is far too high,” said Mr Carling, now a senior fellow at the Centre for Independent Studies.
“There is certainly scope for a trade-off between lower marginal rates and the [50 per cent] capital gains tax discount [to make it less generous].
“Indexation makes the tax system more honest because bracket creep and periodic tax cuts are a sham.”
If it had been indexed to wages, the top threshold would now be more than $260,000. Labor plans to lift it to $190,000 from July, lower than the Coalition’s legislated $200,000.
Tax policy specialist Steven Hamilton said that tax avoidance and evasion meant the top tax rate should be lower than otherwise.
“But that’s true of all taxes,” Mr Hamilton said. “The question is not whether a tax is ‘bad’, because all taxes are bad; the question is: how bad? That is an empirical question.
“Experts worldwide have generated massive amounts of credible evidence on this question. And the conclusion is that these responses are real but fairly modest, and they clearly support a top tax rate of greater than the 39 per cent limit Keating nominates.
“I’m not at all worried by the current top tax rate of 45 per cent, though I’d like to see the threshold [$180,000, due to rise to $190,000 in July] at which it kicks in raised fairly substantially.”
Five Eyes income thresholds
Australia’s top personal tax rate hits workers at lower income thresholds than the other Five Eyes economies of New Zealand, Canada, the United Kingdom and United States.
Australia’s maximum 47 per cent rate is 8 percentage points higher than New Zealand (39 per cent), about 5 percentage points above the US (a figure which includes an estimated average state income tax) and 2 percentage points higher than the UK.
The income threshold at which the top tax rate is imposed is less generous here than Canada ($278,000), the UK ($240,000) and US ($880,000) in currency-adjusted, Australian-dollar terms.
NZ’s top threshold is about $170,000 in Australian dollar terms ($NZ180,000), but the maximum Kiwi rate is lower at 39 per cent.
Australia is among the cohort of 21 OECD countries that does not index tax brackets for inflation. Seventeen OECD countries automatically adjust their brackets to compensate for higher prices.
Westpac chief economist Luci Ellis recently proposed automatically adjusting income tax brackets annually to help limit the squeeze on household incomes from personal income tax.
Increasing the taxable income thresholds annually in line with the RBA’s inflation target of 2.5 per cent would deliver some financial relief, help the central bank manage inflation and take away some of the “political” decisions on tax cuts, Dr Ellis said.
Federal Treasury has ramped up scrutiny of family trusts, revealing that about 1.7 million people received income of almost $60 billion from the tax-friendly trust vehicles.
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John Kehoe is Economics editor at Parliament House, Canberra. He writes on economics, politics and business. John was Washington correspondent covering Donald Trump’s election. He joined the Financial Review in 2008 from Treasury. Connect with John on Twitter. Email John at jkehoe@afr.com
