PDC: Tax policy

This Working Group (WG) was established by the Policy Development Committee (PDC) on 6 March 2013. The working group was tasked with developing policy to improve government transparency and fairness in the tax system. It was chaired by Mark Gibbons and has prepared the following policy text for potential adoption by PPAU.

Platform amendment
Years of ad-hoc changes have left Australia with one of the most opaque tax systems in the world.[1] Poor transparency in our tax system undermines government accountability and burdens us with costs: more than two thirds of taxpayers are now obliged to file returns through an agent.[2] Our system is riddled with stealth taxes, creating unexpected costs which hit the poorest the hardest.[3] Business levies imposed by state governments create hidden costs for consumers, and amount to stealth-consumption taxes. The GST uses antiquated invoicing systems which impose needless burdens on small business[4], while payroll taxes penalize job creation and hurt the prospects of the unemployed. The system urgently requires fundamental reform to improve transparency and progressiveness.

Transparency
Taxing consumption has merit since it doesn't remove incentives to work, save and innovate[5]. However, such tax must be taken at as few points in the economic cycle as possible, and in ways that are easy to track. We support the Henry review proposal to clear out layers of consumption and stealth-consumption taxes and replace them with a single cash flow tax. A cash flow tax is paid by businesses on the difference between sales and expenses: it provides a transparent way to tax consumption which is efficient, simple to pay[6] and difficult to evade.[7]

Innovation
Global research suggests that tax laws are a key to innovation: reducing business taxes in particular is advantageous, since it frees capital for technology development and entrepreneurial activity[8]. Australia imposes one of the highest company tax rates in the OECD,[9] and tax breaks for innovation primarily benefit large firms. We propose two changes: firstly, company tax should match the rates of our international competitors. Secondly, the importance of micro-businesses as an engine of innovation should be recognized. A tax free threshold for micro businesses will nurture their innovative potential, encourage backyard entrepreneurs, and provide a financial incentive for the disadvantaged to develop their entrepreneurship and skills.

Progressiveness
Tax policy is an important mechanism for helping the poor. We believe that persons earning an income below the poverty line should no longer be forced to pay income tax. Increasing the tax-free threshold to match the poverty line will reduce the income tax burden for all taxpayers and free the poor from the costs of submitting a tax return. We also support the push from welfare and community organisations to improve progressiveness by closing tax loopholes employed by higher earners[10].

Progressiveness can also be improved by better targeting of exemptions. Currently, commercial businesses can claim tax exemption (and significant competitive advantage) if they are owned by religious organisations. Supernatural beliefs should be irrelevant for taxpayers in a secular society. We will seek to align the tax code to international norms, removing tax exemptions on commercial income and linking non-commercial subsidies to universally accepted standards of community benefit.

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 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 progressiveness into the tax system through the following measures:

Replace hidden and inefficient taxes.
 * Introduce a cash flow tax informed by the Henry model[12] to replace the GST, many special purpose payments, and a range of 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.
 * The tax will be set at a level sufficient to reduce special purpose payments to the states.
 * This will free additional revenue to be returned through income and company tax cuts.

Make income tax simpler and more progressive.
 * Increase the tax-free threshold to a level equal to the poverty line (currently $25,140)[13] 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.[14]
 * Introduce a tax free threshold on superannuation contributions to protect low and middle 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.[15]

Provide tax exemptions on the basis of community benefit.
 * Reduce tax on donations by expanding deductible gift recipient status to cover all charities.
 * Remove "advancement of religion" as a charitable activity for the purpose of determining tax-exemption.
 * Tax-exemptions will no longer apply to commercial businesses run by religious organisations.
 * Non-commercial income earned by religious organisations will remain tax-exempt if the organisation meets any other categories for exemption (including provision of charity, education, culture, community service, or health).

Reduce company tax and associated costs to promote innovation.
 * Cut the company tax rate from 30% to 25%, subject to cash flow tax revenue, and other changes to be revenue neutral.
 * 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[16].
 * 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”.[17]
 * 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] 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).

[5] 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

[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] 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

[13] Poverty Lines: Australia, Melbourne Institute of Applied Economic and Social Research, 25 January 2013, http://melbourneinstitute.com/downloads/publications/Poverty%20Lines/Poverty-lines-Australia-Sept2012.pdf (Accessed 8 March 2013)

[14] Australian Council of Social Service, Progressive tax reform: Reform of the personal income tax system, Pages 10, 11

[15] 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

[16] 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

[17] 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

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

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