What if instead of considering the big problems about to smack us in the face, the tax summit instead concerned itself with embroidery?
It's a serious risk. The summit will start in less than a fortnight. The published submissions are not encouraging.
The person to watch at the summit - the one who along with former Treasury head Ken Henry knows more about the tax system than anyone else - is Greg Smith, the architect of dividend imputation which he designed for Paul Keating in the mid-1980s also a designer of our fringe benefits and capital gains taxes, and later the man who gave birth to the GST when working for John Howard as head of Treasury's revenue group.
And he was part of the Rudd government's Henry review.
His big concern - as far as I can see unmentioned in the 60 or so submissions on the summit website - is that our income tax take is set to accelerate, slamming consumption, kneecapping the GST and depressing the entire economy.
Smith reads budgets. The latest has personal income tax collections soaring, from $140 billion to $199 billion over four years. Much of it is due to bracket creep. What's unusual is that for the next four years no bracket creep will be handed back quite a change after eight successive personal income tax cuts.
The government has to do it to regain a respectable surplus. "The thing that amazes me," Smith said recently, "is this dwarfs everything else we are debating.
"We're going to lift personal tax collections by at least $55 billion. This dwarfs the $8 billion minerals tax, the $8 billion carbon tax. A worker on $60,000 will go from paying 20 to 22 per cent of their income in tax.
"And while it's happening we are going to start ratcheting up the superannuation guarantee to take even more of household income."
Will it depress the economy? No doubt. Will it hit GST collections? Smith says while income tax collections will grow by $55 billion, the GST will climb just $12 billion.
"The states need the money to run schools and hospitals. They'll be squealing."
Will it kill the ability to sell tax changes? Absolutely. There has never been a significant tax change that hasn't been sold to the public by over-generous personal tax cuts.
Which doesn't mean the summit shouldn't prepare the way for change when the time is right.
The only problem is the government has made it harder.
The increase in compulsory super - against the advice of Henry and his committee - makes it harder to fund the really big demands that are about to hit us.
"The super guarantee is about lifestyle for 60 to 80-year-olds," Smith says. "That's not the problem, the problem is super-late ageing the experience of people aged over 80 and people of any age who need care."
The cost of aged and disability care will soar from just over 1 per cent of gross domestic product to 3 per cent within 20 years.
The other big demand will be the need for a lower company tax rate.
Smith is certain. "The evidence before the Henry review is that cutting the company tax rate is the most helpful thing we could do," he says. "We need to stay competitive to attract capital.
"But ... why would you do it tomorrow in Australia which has about the highest investment rate - foreign investment as a share of GDP - of any developed country? We've already got the investment, so why would we cut taxes when we are straining to manage a surge?
"It's the wrong time now, but I would like a commitment to a 25 per cent company tax rate as a policy goal, with flexibility about the timeline."
Smith dismisses many concerns mentioned in submission, even those he agrees with. Yes, stamp duties could be replaced with land tax, road use could be taxed and alcohol could be taxed more evenly. But they're not the main game.
GST will have to increase and we will have to prepare ourselves for it.
But the big problems - the squeeze on consumption, aged care costs and the need for lower company tax rates - they're staring us in the face.
peter.martin@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What is the tax summit and why should everyday investors pay attention?
The tax summit is a government-led review of Australia’s tax settings. Everyday investors should care because outcomes could change personal taxes, company tax settings, GST and the broader economic outlook — all of which affect consumer demand, company profits and investment returns.
Who is Greg Smith and why do his views matter to investors?
Greg Smith is a senior tax expert who helped design dividend imputation, parts of Australia’s GST and other major tax settings. His views matter because he reads budgets closely and warns that rising personal income tax collections could squeeze consumption, affect GST receipts and influence major tax policy choices that impact investors.
What is bracket creep and how will it affect personal income tax collections?
Bracket creep happens when income rises but tax brackets aren’t adjusted, pushing people into higher average tax rates. The article notes personal income tax collections are expected to jump from $140 billion to $199 billion over four years largely because of bracket creep, increasing the overall tax burden on households.
Could higher personal income tax collections hurt the economy and GST revenue?
Yes. The article highlights concerns that lifting personal income tax collections by about $55 billion could depress consumption, while GST revenue is only expected to climb about $12 billion. Less consumption can blunt GST growth and weigh on economic activity.
How will increases in the superannuation guarantee affect household income and investors?
Raising the compulsory superannuation guarantee pulls more income into retirement savings, which reduces current household disposable income and consumer spending. While intended to boost retirement balances, the article notes critics (including the Henry review advisers) worry it makes it harder to fund pressing demands like aged care.
What are the long-term cost pressures from aged care and disability that investors should know about?
The article warns aged and disability care costs could rise from just over 1% of GDP to around 3% within 20 years. That projected increase could put pressure on government budgets, potentially leading to higher taxes or reprioritised spending — factors investors should factor into long-term economic and policy expectations.
Is cutting the company tax rate a likely recommendation and how would that affect investors?
The article reports Greg Smith believes cutting the company tax rate is one of the most helpful moves to attract capital, and he supports a policy goal of a 25% rate with flexibility on timing. However, he also argues the current moment—when Australia already has high investment as a share of GDP—is not the right time to cut rates immediately. Lower company tax could boost corporate profits and investment appeal over time, but timing and fiscal trade‑offs matter.
What other tax reforms are being discussed at the summit that everyday investors might notice?
Submissions mentioned replacing stamp duties with land tax, taxing road use, and more even alcohol taxation. The article suggests these are smaller issues compared with the main challenges: a squeeze on consumption, rising aged care costs and the debate over company tax rates, and that GST increases are likely to be part of future discussions.
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