Our tax system is reformed in the wake of the pandemic
Money Magazine Australia|December 2021 - January 2022
It’s a political minefield, but something needs to be done as the population ages
Annette Sampson
Our tax system is reformed in the wake of the pandemic

Tax reform has been on the agenda for decades, but since the introduction of the goods and services tax in 2000, governments have had little appetite for change.

The OECD’s latest economic survey, however, has again made the case for reform. It says Australia has become increasingly reliant on personal income taxes, which will make it harder for governments to raise money as the population ages. Personal income taxes made up 47% of government revenue in 2019-20 and account for almost 12% of GDP, compared with around 8% for the OECD average. The GST accounted for only 13.4% of tax collected, with most OECD countries collecting much more.

This is important because broad-based taxes like the GST provide the government with a more certain stream of revenue. We all need to spend money to eat, keep ourselves clothed, travel and basically fund our lifestyles, whereas a growing proportion of the population will not be working as the nation ages.

Like other OECD countries, Australia has run up huge debts to get us through the pandemic and it will be up to future governments (and taxpayers) to handle that legacy.

Given that Australia has a very generous pension tax system, it will be imperative for future governments to find new ways to increase their revenues.

The OECD also argues that inefficient taxes curb economic output and Australia needs reforms to improve productivity and boost wages and growth.

INCREASE THE GST

The OECD has reignited calls for the GST to be lifted or expanded to include items that are currently exempt. It estimates that raising the rate from 10% to 12.5% would lift government revenues by 1%. At 10%, our GST rate is lower than in most other countries, with the OECD average just under 20% and the majority of countries surveyed having rates of 20% or higher.

This story is from the December 2021 - January 2022 edition of Money Magazine Australia.

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This story is from the December 2021 - January 2022 edition of Money Magazine Australia.

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