“We are not supportive of inheritance or death taxes, and that is because a lot of the time those assets are from post-tax income. We want to see a system where income or assets are taxed at the right time, and we believe that should occur during someone’s lifetime.”
Former Grattan Institute CEO Danielle Wood, who is now chair of the Productivity Commission, says the implication of not taking policy action is that future generations will need to bear the costs.
“Ultimately, there are three levers that governments can pull to address long-term budget challenges – they can make economic reforms to ‘grow the pie’, they can increase taxes, and they can reduce spending,” Wood says.
However, higher growth alone will not be enough to close the budget gap, she adds.
“Given the scale of the challenge, governments will also need to find ways to reduce spending and/or boost revenue. After a decade of looking at this challenge, I have come to the view that we will need to do both.
“The scale of the challenge, and the greater buy-in that can be achieved when the costs are spread across the population, are arguments for looking to both sides of the budget for answers.
“More and more, questions of sustainability and intergenerational fairness are raised about our current tax mix. Expect them to get louder and louder over the coming decade without action.”
Leading independent economist Chris Richardson says government spending should be the “go-to” lever to pull, rather than just focusing on taxes to improve fairness.
“Spending really helps the low end, while taxes relative to income even out for pretty much everybody, they are equally negative,” Richardson says.
“There is a range of things that you can do. We do tend to get a little lost – perhaps particularly the financial press – assuming the things the government can do to raise living standards and prosperity, are about tax. They are not.
“Now, some taxes are spectacularly dumb,” Richardson argues. “The most notable one is stamp duty. Every time you raise a dollar in stamp duty, you are shrinking the economy by almost a dollar. Whereas, for example, land tax has a very low efficiency cost.
“If you could get rid of stamp duty in Australia and raise that money through land taxes of various kinds, you would be raising average Australian incomes. In other words, some of the best tax reform measures we can do in Australia are at the state rather than the federal level.”
