Jozef Imrich, name worthy of Kafka, has his finger on the pulse of any irony of interest and shares his findings to keep you in-the-know with the savviest trend setters and infomaniacs.
''I want to stay as close to the edge as I can without going over. Out on the edge you see all kinds of things you can't see from the center.''
-Kurt Vonnegut
Three “maxims” to guide the changes. Three “no-regrets” steps either side of politics could institute right away. And three “big-picture” measures to work towards in the medium term.
Steven Hamilton Columnist
Apr 13, 2025
To a tax reform obsessive, the complete absence of any discussion of tax reform during this federal election campaign has been quite depressing.
After a quarter-century without meaningful tax reform, it won’t kill us to wait another few years. But after a decade of stagnation, including a few years in which our living standards have gone backwards, and serious threats to our major source of prosperity have emerged over that time, the opportunity cost of inaction is only going up.
Treasury, which no longer contains a dedicated tax reform function, needs to rebuild one. Alamy
This is exacerbated by the fact that without more revenue, the relentless march of public spending drives us ever deeper into deficit. Both sides of politics ought to concede that spending must help bridge that gap, but it cannot do so alone. Both sides committed to spend more, so both should tell us how they’ll pay for it.
By removing the cap on tax receipts after the last election (a reasonable decision on its own given the need to raise additional revenue) but not pairing this with any initiative to embark on tax reform, the government has committed, quite explicitly, to closing the structural deficit over a decade solely via higher income taxes.
This is untenable. Something’s got to give. But we also don’t want the government (or opposition) running in half-cocked with “tax reform” ideas that raise revenue but make our tax system worse. Recall Labor’s ill-advised, revenue-raising tax-reform proposals at the 2019 election to see what that looks like.
There is a lot of soil left to till. Experts need to study how our tax system functions. We’ve got to inform the public about the costs of inaction and the benefits of action. We’ve got to devise saleable proposals that appeal to politicians. And Treasury, which no longer contains a dedicated tax reform function, needs to rebuild one.
“This is the tax reform agenda our treasurer – in the shadow of Keating and Costello – should be pursuing.”
Eventually, we will need to form a national tax reformchorus. So, with that in mind, here’s a sketch of what a tax reform blueprint could look like. Three “maxims” to guide tax reform. Three “no-regrets” reforms either side of politics could institute right away. And three “big-picture” reforms to work towards in the medium term.
The first maxim is that we should care about triangles, not treasure. The “Harberger triangle” represents graphically the economic damage of taxes. We are happy to commit tens of billions of dollars to new spending each year without any thought of how to fund it. Yet the notion of cutting taxes just to boost growth is unthinkable.
The second maxim is that our tax system is a toolkit.“Grattan brain”, which requires every policy to be “fair”, is counterproductive. Some taxes, like the GST, are not meant to be fair. Its purpose is to raise lots of revenue very efficiently. If you care about fairness, use a tool suited to that job, like income taxes and transfers.
The third maxim is that anything that can reduce your taxes is distorted by them. An old-fashioned view obsesses, narrowly, over the effect of taxes on work incentives. And they do matter. But taxes do far more damage than that. At least as important are the effects on evasion and avoidance, and administration and compliance costs.
These maxims lead us naturally to three “no-regrets” policies that whichever side of politics is successful at the election should introduce in the next term of parliament.
The first is to index the income tax thresholds to kill bracket creep. Bracket creep means all new spending is funded solely by income taxes, distorting our tax mix. We collect too much revenue from income and not enough from other sources. It also incentivises a lack of spending discipline by taxing by stealth.
‘Instant asset write-off’ on steroids
The second is immediate expensing for all Australian businesses of any size for any investment. This is the “instant asset write-off” on steroids. This is the single tax policy with the most overwhelming evidence in its favour to boost growth. No business would ever have to think about a depreciation schedule ever again.
The third is a standard deduction, which would give all taxpayers an annual deduction of say $3000 without receipts (or more with receipts). Nobody would be worse off, but taxpayers would save billions in compliance costs, nearly all tax avoidance would be eliminated, the ATO would face radically reduced administrative costs, and tax returns could become a thing of the past for nearly all.
Having enacted these “no-regrets” reforms, we could turn our minds to bigger fish.
The first is to introduce a dual-income tax, which would set a flat, uniform rate on all forms of capital income, such as interest, dividends, capital gains, rent, superannuation returns, and trusts. This would harmonise the wildly differing tax rates applicable to different investments, eliminate the distortion introduced by the interaction of the CGT discount and negative gearing, and stamp out tax avoidance.
The second is to raise and broaden the GST. The GST should be our primary revenue raiser, as it is in Europe. It is an outrage that we raise so little money from it. Radically higher GST revenue could finance generous income tax cuts and larger transfers, and phase out tied grants to the states, giving them more autonomy.
The third is to rationalise the income tax and transfer system. Our tax and transfer system is a dog’s breakfast. At certain incomes, earning more means taking home less in pay! The system needs to be torn down and rebuilt from scratch; in particular, the patchwork of tens of billions in payments related to having children.
This is the tax reform agenda our treasurer – in the shadow of Keating and Costello – should be pursuing. A quarter-century between drinks is long enough.
