PDC: Tax working group

This Working Group (WG) was established by the Policy Development Committee (PDC) on 6 February 2013.

Working group report
This working group was tasked with developing policy relating to the reform of taxation and transfer payments systems to encourage innovation and job creation. The working group was chaired by Mark Gibbons and will present the following policy text to the March 6 PDC meeting.

Recommendation
The tax and transfer policy working group recommends the adoption of the following policies to promote transparency and innovation.

Preamble
Accountable government requires transparency in both spending and revenue. Australia is a particularly poor performer in the latter area, having one of the most opaque tax systems in the world[1]. Australians simply pay too many taxes, and the complexity forces more than two-thirds of taxpayers to file returns through an agent[2]. Beyond the ‘visible taxes’ are state taxes such as payroll tax, which penalize job creation and burden businesses with extra costs. These are passed on to consumers and impose hidden costs on the community at large[3]. Inefficient, hidden taxes are a source of waste and inefficiency, but also a fundamental barrier to government transparency.

Consumption taxes are well regarded among economists because—unlike company and personal tax—they don't remove incentives to work, save, and innovate.[4] However, the GST is a poor mechanism for taxing consumption due to the high administrative burden and reliance on pre-digital invoicing, which hinders newer and smaller businesses[5]. State charges on business are worse since they act as stealth-consumption taxes bereft of accountability and efficiency. Tax revenue needs to be taken at as few points in the economic cycle as possible, and in ways that are easily tracked. The Pirate Party supports the Henry review proposal to clear out layers of consumption and stealth-consumption taxes and replace them with a single, transparent cash flow tax. A cash flow tax is paid by businesses on the difference between business sales and business expenses. It is a form of consumption tax which meets the requirements of a modern tax system, being efficient, simple to pay[6] and difficult to evade.[7]

Changes can also be made to promote innovation. Global research suggests that tax laws are a key factor in the amount of innovation a country produces, and that reducing business taxes provides particular benefit by freeing capital for technology development and entrepreneurial activity[8]. However Australia imposes one of the highest company tax rates in the OECD,[9] and where tax breaks for innovation do exist, they primarily benefit large firms. Two changes need to be made: firstly, company tax needs to be reduced to match the rates of our international competitors. Secondly, the importance of micro-businesses as an engine of innovation needs to be recognized. A tax free threshold for micro businesses will nurture their innovative potential, encourage backyard entrepreneurs, and provide a financial incentive for people on low incomes and benefits to develop entrepreneurship and skills.

Tax policy is also a mechanism for helping the poorest in our society. The Australian Council of Social Service (ACOSS) has proposed a range of measures for improving progressiveness in the income tax system. The Pirate Party is supportive of proposals to close tax loopholes employed by higher earners[10]. Revenue raised in this way can be used to increase the tax free threshold, freeing the poorest taxpayers from the burden of paying income tax and submitting a tax return.

Finally, the Pirate Party will support the global campaign for an international transactions tax. A small tax on high frequency speculation will raise revenue to combat global poverty and environmental damage, and ensure that financial speculators are made accountable for some of the costs of the global financial crisis. It will also redirect capital toward productive uses and away from short-term churning, which creates instability at the heart of the global economy[11].

Policy text
The Pirate Party will build transparency and support for innovation into the tax system through the following measures:

Make income tax simpler and more progressive.
 * Increase the tax-free threshold to $25,000 and remove the present clutch of offsets and thresholds.
 * Implement ACOSS recommendation on reducing tax avoidance by classifying more forms of work payment (company cars, fringe benefits, shares) as standard taxable income.[12]
 * A tax free threshold will be instituted for superannuation contributions to protect low income earners.
 * Abolish income tax on government benefits.
 * Implement Henry Review recommendation to provide taxpayers with an optional standard deduction for income tax returns, obviating the need to collect and retain receipts.[13]

Introduce a transparent cash flow tax to replace hidden and inefficient consumption taxes.
 * The design of the cash flow tax will be informed by the Henry model[14] and will replace the GST, most State grants, and many state taxes. Revenue will be distributed among states who agree to abolish:
 * Payroll tax
 * All insurance taxes
 * All property transfer taxes
 * Stamp duties on the purchase of motor vehicles
 * Luxury car taxes
 * Taxation of superannuation contributions in the fund.
 * Financial services will be taxed equivalently to other forms of consumption.
 * Exports will be exempt and imports subject to the tax, to support international competitiveness.
 * Gains made through improved efficiency and reduced Federal grants will be used to reduce company tax and increase the income tax-free threshold.

Reduce company tax and associated costs to promote innovation.
 * Cut the company tax rate from 30% to 25%.
 * Introduce a tax-free threshold of $2,000 for sole-trading micro-businesses.
 * Micro-business income up to this level will be discounted for the purpose of calculating income tax and benefit thresholds.
 * Implement key Henry Review proposals on reducing administrative burdens for businesses[15].
 * Allow businesses to offset losses against a previous year's taxable income.
 * Increase the low-value asset threshold for small businesses to $10,000 and allow depreciating assets to be grouped.

Make tax administration more transparent and citizen-focused.
 * Trial a process for the community to directly petition the government on tax-related issues, with a view to extending the process to other areas of governance.
 * Implement Henry Review proposals to make tax more “citizen-centric”.[16]
 * Provide taxpayers with an easy mechanism to review the totality of their financial relationship with government.
 * Allow all taxation transactions to be conducted online.
 * Ensure data and reviews on the function of taxes and transfer systems are made public.
 * Ensure interconnection of systems such that changed information (such as a move in address or a change in personal circumstances) only requires a single input.
 * Institute common processes for easy transition between different tax payments.

Push for an international transactions tax.
 * Support the global campaign for an international transaction tax on high-frequency stock market trading.

[1] Commonwealth of Australia, Australia's Future Tax System, Page 11. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, [2] Commonwealth of Australia, Australia's Future Tax System, Page 31. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, [3] Commonwealth of Australia, Australia's Future Tax System, Page 13. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, [4] Commonwealth of Australia, Australia's Future Tax System, Page 18. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, [5] Khadem, Small business’s $12,000 GST compliance burden, 18 December 2012.http://www.brw.com.au/p/sections/fyi/small_business_gst_compliance_burden_4vet5VSU3DEdILVGBMPG5I (Accessed 1 March 2013). [6] Commonwealth of Australia, Australia's Future Tax System, Page xxi.http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, [7] Bond and Devereux, Cash flow taxes in an open economy, Page 4 [8] OECD, Economic Surveys: Australia - December 2012, Page 19 Commonwealth of Australia, Australia's Future Tax System, Page 40 .http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, [9] http://www.taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_5-07.htm [10] Australian Council of Social Service, Progressive tax reform: Reform of the personal income tax system, Pages 10, 11 [11] Krugman, Taxing the Speculators, November 26 2009, http://www.nytimes.com/2009/11/27/opinion/27krugman.html (Accessed 8 March 2013). Summers, L. H. and V. P. Summers, 1989. When financial markets work too well: a cautious case for a securities transactions tax, Journal of Financial Services Research 3, 163–188. [12] Australian Council of Social Service, Progressive tax reform: Reform of the personal income tax system, Pages 10, 11 [13] Commonwealth of Australia, Australia's Future Tax System, Page 83. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf [14] Commonwealth of Australia, Australia's Future Tax System, Part Two: Detailed Analysis Page 279. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_2/AFTS_Final_Report_Part_2_Vol_1_Consolidated.pdf [15] Commonwealth of Australia, Australia's Future Tax System, Page 87. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf [16] Commonwealth of Australia, Australia's Future Tax System, Page 103. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf

Preamble
Transfer payments include the full scope of government payments and benefits which act together to provide a social safety net. While such a safety net is essential, the operation of it has been corrupted in Australia by lack of systemic planning and continual vote-buying exercises. A range of ad-hoc middle-class welfare measures operate with little economic merit and poor coordination[1] (as an example, the Howard-era Family Tax Benefit part B provides incentive to parents to stay off work,[2] while the Gillard-era Paid Parental Leave scheme offers a counter-incentive to stay in the workforce[3]). At the same time evidence is emerging that the fundamental purpose of welfare (alleviation of poverty) is no longer being adequately served.[4]

Australia's tax free threshold is currently under $20,000 per year[5]. Low income earners are thus routinely taxed, with the money subsequently churned back to them again through the welfare system. Greater independence, transparency, and social justice are provided if money is not taken in the first place (see: tax policy) and the transfer system operates efficiently, provides incentives to work, and targets the areas of greatest need.

Policy text
The Pirate Party will create a customisable and streamlined structure for transfer payments through the following measures:

Introduce a modular, simplified transfer payments system
 * The current body of payments (Family Tax Benefits parts A and B, Baby Bonus, School Kids Bonus, Newstart, Age Pension, Parental Leave Scheme, Disability Support Pension, AusStudy, Carer Payment, etc) will be replaced.
 * A new Basic Income will be introduced for persons aged 18 and over:
 * This will be commence at $300 per week for singles (equal to The Queensland Council of Social Service estimates for minimum standard of living[6]) and $550 per week for couples, and will provide a safety net to all citizens who have no other income source.
 * Claimants will be required to seek employment or engage in full-time study.
 * A range of modular supplemental payments will also be made available:
 * A Pension Supplement will provide an additional $70 per week for single senior citizens, disabled persons, and full-time carers, and $110 for couples able to remain together.
 * Recipients of this supplement will be exempted from obligations to study or seek employment.
 * A Childbirth Supplement will raise the Basic Income for one parent to be equivalent to a full-time minimum wage for a period of three months after childbirth.
 * A Parenting Supplement will provide a fixed amount per child to cover food, clothing and other direct costs of child raising.
 * An additional childcare allowance will be available for each child aged under 5.
 * An additional education allowance will be available for each child aged 5 and over.
 * Children aged 16 to 17 may receive their supplement in the form of a youth allowance payment if they are not supported by their families.
 * Persons claiming the Parenting Supplement and associated rebates will be required to meet minimum parenting standards including vaccination and school attendance.
 * Rental assistance will provide an additional $25 per week to persons or couples who lack social housing.
 * Movements in this allowance will indexed to changes in average rental costs.
 * All current assets and incomes tests will be replaced with a single means test applying to the Basic Income and all linked supplements.
 * Withdrawal rates for all payments will reflect differing work expectations applying to different payments, and will be set at levels that provide an incentive to work.
 * The Basic Income and all linked supplements will be tax-exempt to avoid churn and improve interaction with the tax system.
 * The Basic Income and all linked supplements (excepting rent assistance) will be subject to indexation based on the CPI, with annual reviews to ensure adequacy.

[1] Australia Institute, The State of the Australian Middle Class, Page 16 Rout, Economists call for end to middle-class welfare, 25 February 2013. http://www.theaustralian.com.au/national-affairs/treasury/economists-call-for-end-to-middle-class-welfare/story-fn59nsif-1226584602417 (Accessed 1 March 2013). [2] http://www.humanservices.gov.au/customer/services/centrelink/family-tax-benefit-part-a-part-b [3] http://www.humanservices.gov.au/customer/services/centrelink/parental-leave-pay [4] Australian Council of Social Service, A fairer, more efficient tax and social security system, Page 25 [5] http://www.ato.gov.au/youth/content.aspx?doc=/content/39122.htm&alias=taxfreethreshold [6] Australian Council of Social Service, A fairer, more efficient tax and social security system, Page 27

'''Got feedback or suggestions? Send us an email at policydev@pirateparty.org.au. '''

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