Tuesday, August 5, 2008

OECD Tax Suggestions Not Helpful For Australians

The comprehensive review of taxation ordered by the federal government will produce its first discussion paper this week. Already it has been indicated that the paper may well canvass options which are unlikely to be taken up by the government. That might include some discussion of wealth tax and inheritance tax, both of which would be unpalatable to the Australian people. One thing that won’t be up for discussion will by any change to the scope or the amount of the G.S.T. because the treasurer has specifically ruled that out.

Ahead of that discussion paper however, a report by the O.E.C.D. has recommended that the G.S.T. should be expanded to include food, and that property taxes should be increased. This should be counterbalanced by a reduction in personal and company income tax. The reason is that consumption tax encourages saving while income tax reduces the incentive to work.

In the broader economic picture this view is correct. However, in setting a tax to discourage excessive consumption it should be recognized that not all consumption is excessive. Some of it is essential, especially when it comes to food. No matter what handouts might be made available to compensate low income earners, and no matter what income tax reductions might be offered, the increase to food prices would not be acceptable to Australians.

At the same time, increases in land tax and property rates may well be more difficult to avoid, but they also have another less desirable effect. They act to further reduce the affordability of housing which is already a problem. It is in effect discriminatory in that only the wealthy could hope to afford the Australian dream of home ownership.

The real problem with taxation in Australia is that it is too complicated, and there is too much government. Paying tax on our bread and milk is not what Australians want.

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