Simpler returns considered as way to ease tax burden
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Tax cuts funded by simpler tax returns could put more money back in the pockets of millions of Australians under a plan being closely considered by the Turnbull government.
Following the release of modelling that showed a GST rise to 15 per cent would raise $35 billion to pay for income tax cuts – but do little to boost economic growth after compensation – Treasurer Scott Morrison declared work on tax reform was "never done" and vowed to press ahead in an exclusive interview with Fairfax Media.
Economic growth and tax relief for working families, Mr Morrison said, would remain the government's key focus in the lead up to the budget but income tax cuts would be more "modest".
In a sign of where the government may land on tax system changes, the Treasurer praised the work of an inquiry, led by government MP Craig Laundy, to simplify Australia's complex tax deduction system and the principle of simplified tax returns.
"If you can't go down the tax mix switch [trading a GST rise for income tax cuts], the scale of changes has to be more modest," Mr Morrison conceded.
Asked about the prospect of Australia adopting changes similar to the UK or New Zealand to work-related deductions, Mr Morrison said "no two countries are completely alike, they have different cultures, but tax simplicity is a positive whichever way you look at it".
" The estimate of how much is available on workplace deductions is about $5 billion. That's significant, but it's not $35 billion in change of consumption tax."
Nevertheless: "If you are going to make changes there, obviously the revenue would have to be channelled back into ensuring lower taxes and a simpler system for people."
Fairfax Media reported on Saturday that Mr Morrison's Treasury department is considering a universal cap on income tax deductions that would apply to negative gearing as well as employment-related expenses.
Senior government sources confirmed the changes to work-related tax deductions were likely; one said he would be "amazed" if the government did not adopt them; another said the UK approach of simplifying, but not eliminating, deductions was "almost certain" to be adopted in the next budget.
Mr Laundy heads the economics committee examining the approaches taken by the UK and New Zealand, which allow limited and no work-related tax deductions respectively.
About two-thirds of people in Britain don't file tax returns since the simplification of tax returns was introduced.
With deductions axed or scaled back – simplifying tax returns – around $5 billion to $6 billion could be returned to taxpayers as income tax cuts.
Billions more could be available if, as seems likely, the government also tightens tax breaks on superannuation and negative gearing.
Mr Laundy said Australia's income tax system was 101 years old and had been "poked and prodded and added to and taken away from in a piecemeal fashion. If you are going to have a full discussion on tax reform and everything is on the table this clearly needs to be there".
"Simplifying the tax system is something we should always look to do, especially when it results in lower marginal tax rates," he said.
"It's great that Scott has given me the freedom to investigate this and see how we can simplify the system."
On superannuation tax concessions, Mr Morrison conceded changes were possible but indicated no decisions had been taken and that the government would not impose taxes that would hit people drawing down on super.
Mr Morrison said that changes to tax rates at the point at which super is paid in, proposed by economist Chris Richardson, were "prospective" and "if you adopted it people would know, going forward, what the impact would be" appear to be more likely.
In Australia last year $31 billion in work place deductions were claimed, with $7 billion of that going on accountants' fees, which are themselves a tax deduction.
Source: Brisbane Times