Wednesday’s release of the Architecture of Australia’s Tax and Transfer System
review paper saw commentary by lobby groups attacking capital gains taxes.
PETER ANDERSON, CEO ACCI: Our capital gains tax has not been looked at in an analytical way for more than 20 years. And capital gains tax as it currently is structured is a tax on investment. So we need to try and reduce the level of taxes on constructive investments.
The property lobby is also wanting to look after their interests. However, we were heartened to read in the government’s Tax and Transfer paper:
The OECD (Johansson et al 2008) has recently undertaken a cross-country study of the effects of different taxes on economic growth. The indications from this analysis are that property taxes have the least detrimental impact on growth, followed in order by taxes on consumption, taxes on labour income and taxes on capital income.
Read the OECD report – Do tax structures affect aggregate economic growth? Empirical evidence from a panel of OECD countries
The waters get murky from here on in, with further clarification of the importance of property taxes dwindling due to the two dimensional nature of Neo-Classical Economics:
6.1 Australian Government and State taxes on labour, capital and consumption. Australia’s tax mix is slightly skewed towards the direct taxation of labour income,
accounting for around 40 per cent of revenue raised. This includes taxes on salary and wages and fringe benefits, taxes on superannuation contributions and payroll taxes. Taxes on capital income account for around a third of revenue, while taxes on consumption account for slightly more than a quarter.
The above quote underlines where we get lost in our tax quagmire. Consumption is now seen as the third cog in the wheel. The most essential element for all three categories, that neither Labour, Capital or Consumption can exist without is hidden in the back vaults. Land is the most essential factor of production. Eventhough the quotation of Johansson (above) re-iterated primal economic theory, that property, namely land based charges, are the most efficient and least distorting revenue raising mechanism, we read that consumption taxes are sacrosanct. Yet Consumption taxes are the most regressive of all charges.
The looseness of the term Property Taxes also clouds analysis. Will the lumping of financial and capital transaction charges in with ‘immovable property’, leading to a grand total of 9% in ‘Property taxes’, further the lobbying ambitions of those trying to water down property based charges by any means necessary? From p228 we read:
Property taxes contribute just under 9 per cent of total Australian tax revenue compared with an OECD average of just under 6 per cent. Australia’s property taxes come from two main sources. Taxes on immovable property contribute around 4.5 per cent to total tax revenue compared with an OECD average of around 3 per cent. Taxes on financial and capital transactions, which include conveyancing stamp duties, contribute around 4 per cent of tax revenue, compared with an OECD average of around 2 per cent.
Note the narrow tax base for State Governments and remember why this efficiency is possible:
The States collected $48.9 billion through their own taxes, with a further $9.4 billion being raised through local government taxes. Taxes on property, including land tax, rates and stamp duty, make up around half of state tax revenue, with payroll taxes making up a further quarter. Other important sources of tax revenue are taxes on motor vehicles, gambling and insurance contracts. In total, the States levy around 26 different types of taxes, including local government rates. Nevertheless, in comparison to the Australian government, the overall state tax base is relatively narrow.
The allocation of revenue according to capital, labour and consumption differs between the two levels of government. At the Australian Government level the contribution from taxes on labour is around 50 per cent higher than the contributions from taxes on capital and consumption. At the State government level, the contribution from taxes on consumption and labour are roughly equal, while taxes on capital are around 50 per cent higher.
Stay tuned for more analysis of the 125 taxes draining society and how we could strip this back to 4 or 5.