Family First Senator-elect Bob Day has used a speech to The Tax Institute of Australia to call for a moratorium on all new taxes including a moratorium on increasing or broadening existing taxes. He has also called on the Federal Government to align corporate and personal taxation into a single rate.
“The first thing to say about taxation is that we need less of it, not more.
“As has been widely acknowledged – even most recently by the Treasurer Joe Hockey himself, governments in Australia do not a revenue problem, they have a spending problem.
“So if I were Joe Hockey, I would announce at the presentation of the upcoming Budget that the Government is declaring a moratorium on any new tax increases - and not just in this term, but in any future terms that voters may grant it. As he and the Prime Minister have said many times, you cannot tax your way to prosperity.
As for talk of a ‘temporary’ increase in tax rates, in politics nothing is more permanent than a temporary tax.
“The one tax change most often proposed by economists, business people and, of course, State Treasurers is for an increase or broadening of the GST.
“Why the Commonwealth would even consider such a proposal is beyond me.”
“The Federal Government would bear the pain, and the States would enjoy the gain - which they would no doubt spend as extravagantly as they have done with the existing GST proceeds.
“Why on earth would any sensible person want that?
“These Treasury officials, economists and business people will of course say that they don't want to raise more revenue, they just want to raise more from the GST and then offset that by reducing other taxes. The problem with that argument is the same as it was when the GST was originally introduced; namely that, by the time you have "compensated" everybody who says they will be worse off as a result of the rise or broadening of the GST, you are left with only a portion of what the GST increase will raise.
The result, as it was in 2001, would be a higher level of expenditure and a higher level of taxation.
“There is however one small change to the GST which might be justified, and that is to reduce the current $1,000 level of on-line purchases that are GST-free. Perhaps down to $100. So with that very minor caveat, Joe Hockey should make it crystal clear that he will not be raising the GST rate nor will he be broadening its base either in this term of office or in any future terms."
In order to remove one of the most significant tax avoidance avenues, Mr Day used his speech to call for an alignment of company and personal tax rates.
“The flatter the tax rate, and the fewer the distortions, the higher the level of compliance. It has been demonstrated many times, that when taxation rates are reduced revenues do not fall.
“The truth of this has been demonstrated around the world – when the Australian company tax rate was cut from 39 to 30 percent, revenues went up rather than down. The famous Reagan tax cuts from 70 per cent to 28 per cent in the 1980s produced a $9 billion increase in revenue when a $1bn shortfall had been forecast. Russia is another example, where the move to a 13 percent flat rate tax in 2001 increased revenues from 9 to 16 percent of GDP. And when Sweden halved its company tax rate
from 60 per cent to 30 per cent company tax revenue tripled. This is because popular resistance declines as people view the tax system as fair and reasonable.
“We need to start working on reducing the 30 per cent company tax rate. It can't be done overnight, but the Government should start by cutting the rate by one percentage point in this Budget, and then announce its intention to make a similar reduction every year it is in office. That would hold out the prospect of a 20 per cent company tax rate and 20 per cent personal tax rate by 2024.
“The four key benefits of a single-rate tax would be:
1. Higher revenues as tax evasion and the exploitation of loopholes were reduced
2. Enhanced social justice because the low paid are exempt from paying tax;
3. People working harder as incentives improve; and
4. Faster economic growth.
“And it goes without saying that taxation rules and sanctions must be clearly specified in advance so people know how they are supposed to behave and what will happen to them if they do not.
“There comes a point when the prospect of giving up half or more of any additional earnings leads
people to decide that it is simply “not worth it”. Taxation then starts to produce gross inefficiencies as people stop working as much or as hard as they used to, and governments find their taxes are not producing the revenue they have come to expect. Governments are then drawn into a vicious spiral, jacking up tax rates to try to compensate for the falling revenues that their high tax demands have created.
Memo to Joe Hockey: “Want to raise more revenue? Then reduce the tax rate.”
Mr Day also used his speech to defend the election of minor and micro-party senators.
“Bear in mind, that while 25per cent of the electorate did not vote for a major party (over 40 per cent in SA), the non-major party senators who were elected took only 18 per cent of the seats. Yes, people like Ricky Muir of the Australian Motoring Enthusiast Party got a tiny number of primary votes but people weren’t specifically voting for him - it isn't personal, any more than it is with major party senators, people do not vote for individual senators, they vote for the Party and Ricky Muir represented all those who
voted for someone other than the major parties.”