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
Genuinely accountable government requires both transparent spending and transparent 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 many are inefficient and poorly conceived. Seventy-two per cent of Australian tax filers are now obliged to use an agent to oversee their tax returns—among the highest levels in the OECD.[2] Invisible taxes also operate alongside the visible ones. State taxes such as payroll tax do not just penalize job creation, but create costs for businesses which are inevitably passed on to consumers. As many state charges operate this way, consumers in Australia are continually subjected to what amounts to an array of stealth-consumption taxes, with serious effects on community welfare[3]. This is not just a source of waste and inefficiency, but a fundamental barrier to government transparency.

The transparency principle requires that tax revenue be taken at as few points in the economic cycle as possible, and in ways that are efficient and easily tracked. A consumption tax is effective in this regard since, unlike company and personal tax, it does not reduce incentives to work, save, and innovate.[4] However, the GST is not an ideal model due to its reliance on pre-digital invoicing and the heavy administrative burden imposed on business (particularly small business)[5]. The Henry review produced a detailed proposal to replace the GST and a swath of other state taxes with a single 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 that meets the requirements of a modern tax system, being efficient, simple to operate and track,[6] and difficult to evade.[7]

In addition to transparency, tax law should also support innovation. Global research suggests that reducing taxes on business—particularly company tax—frees up capital for technology development and entrepreneurial activity[8]. Australia currently has among 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 a level consistent with our global 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 their entrepreneurship and skills.

Social benefits can also be gained by modifying income tax to increase tax-free thresholds for low income earners, while removing tax loopholes employed by higher earners (such as private trusts and company cars).[10]

Principles of transparency and simplicity in tax apply also to environmental taxes. The Pirate Party accepts the science of climate change and the need to price environmental externalities. However we believe that the current simple carbon price mechanism should be left to work on its own terms. The impending incorporation into the European ETS scheme should be prevented as the price signal for this scheme is weak, erratic, and subject to dubious carbon trading mechanisms.[11]

The Pirate Party also supports the Henry Review recommendations on bringing tax policy into the digital age to create a more citizen-centric system.

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

Introduce a broad, low-rate cash flow tax to replace the existing patchwork of state taxes.
 * The cash flow tax will replace the GST and most State grants, and will be set at a level which also allows for abolition of the following taxes:
 * 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.
 * Revenue from the cash flow tax will be distributed among states who agree to abolish all above-listed taxes permanently.
 * 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.
 * Financial gains made through improved efficiency and reduced Federal grants will be used to fund company tax cuts.

Reduce company tax and associated costs to promote innovation.
 * Cut the company tax from 30% to 25%.
 * Apply uniformity by removing differentiated tax treatments for specific assets or activities, and tax private trusts as companies to prevent tax avoidance.
 * Reduce cyclical pressures by allowing companies to offset a proportion of revenue loss against a prior year’s taxable income.
 * Increase the threshold for determining a low-value asset for small businesses to $10,000 to reduce administration and costs.
 * Enact 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.

Make income tax simpler and more progressive.
 * Increase the tax-free threshold to $25,000 and remove offsets and tax thresholds.
 * Reduce tax avoidance by counting all forms of work remuneration (company cars, fringe benefits, shares) as taxable income.
 * A tax free threshold will apply to superannuation contributions.
 * Abolish income tax on government benefits.
 * Offer taxpayers an optional standard deduction for income tax returns, obviating the need to collect and retain receipts.

Keep carbon pricing simple and transparent.
 * Maintain the carbon tax in its original form, and avoid full integration into global trading schemes and carbon derivatives markets.

Enact Henry Review recommendations on improving transparency and accountability.
 * Ensure data and reviews on the function of taxes and transfer systems are made public.
 * Ensure a process exists by which the community can raise tax-related issues for consideration by government.
 * Allow all taxation transactions to be conducted online.
 * 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.
 * Provide taxpayers with an easy mechanism to review the totality of their financial relationship with government.
 * 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 non-productive, high-frequency stock market trading.

[1] http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, page 11 [2] http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, page 31 [3] http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, page 13 [4] http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, page 18 [5] http://www.brw.com.au/p/sections/fyi/small_business_gst_compliance_burden_4vet5VSU3DEdILVGBMPG5I [6] http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf, page xxi [7] http://elsa.berkeley.edu/~burch/Bond.pdf, page 4 [8] http://www.oecd.org/eco/surveys/Australia%20overview%20Eng.pdf p 19 and http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf p 40 [9] http://www.taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_5-07.htm [10] http://www.acoss.org.au/images/uploads/Personal_Income_Tax_Reform_-final_09.pdf, pages 10, 11 [11] http://corporateeurope.org/news/eu-ets-failing-third-attempt

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, while the Gillard-era Paid Parental Leave scheme offers a counter-incentive to stay in the workforce). At the same time evidence is emerging that the fundamental purpose of welfare (alleviation of poverty) is no longer being adequately served.[2]

Australia's tax free threshold is currently under $20,000 per year. 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
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, Disability Support Pension, Carer Payment, etc) will be replaced.
 * A new Citizen's Income will be introduced for persons aged 18 and over:
 * This will be commence at $300 per week for singles (equal to Council of Social Service estimates for minimum standard of living[3]) 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 Parenting Supplement will provide a fixed amount per child to cover food, clothing and other direct costs of child raising.
 * An additional childcare rebate will be available for each child aged under 5.
 * An additional education rebate 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 minimum 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 currently applying assets and incomes tests will be replaced with a single means test applying to the Citizen's Income and all linked supplements.
 * Withdrawal rates for all payments will reflect the different work expectations applying to different payments, and will be set at levels that provide an incentive to work.
 * The Citizen's Income and all linked supplements will be tax-exempt to avoid churn and improve interaction with the tax system.
 * The Citizen's Income and all linked supplements (excepting rent assistance) will be subject to indexation based on the CPI, with annual reviews to ensure adequacy.

[1] http://www.melbourneinstitute.com/downloads/hilda/Bibliography/Working+Discussion+Research_Papers/2007/Hamilton_etal_State_of_Australian_Middle_Class.pdf p 16, and http://www.abc.net.au/unleashed/2693116.html and http://www.theaustralian.com.au/national-affairs/treasury/economists-call-for-end-to-middle-class-welfare/story-fn59nsif-1226584602417 [2] http://acoss.org.au/images/uploads/A_fairer_more_efficient_tax_and_social_security_system_-_Sept_29_2011.pdf, page 25 [3] http://acoss.org.au/images/uploads/A_fairer_more_efficient_tax_and_social_security_system_-_Sept_29_2011.pdf page 27

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