We all accept that we have to pay personal income tax to fund essential services. What taxpayers don’t accept is when they are expected to keep giving more and more of their wages in tax.
Therefore, we rely on the government to only collect what is really needed and to make the most of what is collected in taxes by spending it prudently.
The Coalition doesn’t believe that the government should just spend everything it collects from taxpayers. We should find ways to reduce what is collected and stop spending money where it doesn’t need to be spent.
We don’t support Labor’s approach to keep spending more and to keep asking for more money from taxpayers.
The tax system must not be viewed as an ever expanding funding mechanism, especially for ever increasing public expenditures. The structure and arrangements of our tax system must operate as effectively and efficiently as possible.
We must aim to reduce the overall tax burden on the community and work to promote stronger economic growth. This is the essential starting point when designing a tax system for Australia’s future.
As a nation we need a tax system that doesn’t hinder or limit our efforts and endeavours. Australia must seize the opportunity of the massive growth in Asia and harness the potential of the digital economy. Together we must continue to innovate, to build and to strive.
This need for growth and development applies to traditional industries such as mining where we enjoy a natural competitive advantage, as well as the new industries of the future.
We need to be creating better jobs for our children. We need a stronger economy to ensure that we look after the disadvantaged in our society now and into the future.
It won’t be the government that determines the next technological or commercial breakthroughs. It is the hard working men and women of Australia who make the difference. Growth will come from the people who are willing to have a go, to think of a new idea, to take a risk, to see the potential and to seize the moment.
We cannot afford to have a tax burden that stifles growth and costs jobs. We can’t just view the tax system and Australian taxpayers as a collection pool of unlimited funds.
So in developing a better tax system, we need to consider the sustainability of our heavy reliance on income tax, especially personal income tax. This is because we need to take into consideration the negative impact and disincentive of higher taxes.
The problem is that we have an over-reliance on personal income tax to support our revenue base. Australia's largest source of tax revenue is personal income tax. It raised about $185 billion last year.
Australia’s top marginal tax rate is higher than the OECD average and relatively high by international standards. When personal income tax is calculated as a proportion of total tax revenue, Australia’s taxation level is the second highest amongst OECD countries.
We need to consider that around 300,000 Australians are expected to move into the second highest tax bracket over the next two years. In just ten years, nearly half of all taxpayers will be in the top two tax brackets - an increase from around 27 per cent today to 43 per cent.
Our personal income tax revenue is subject to unsustainable risk. For example, the top ten per cent of individual taxpayers pay nearly half the personal income tax collected by the government.
That is an over-reliance and dependence on a narrow base, that is increasingly mobile, to support our vital social infrastructure.
A good tax system supports the economic growth that will ultimately deliver the revenue needed to fund social programs. It will also deliver employment opportunities and increased living standards for everyday Australians.
Therefore the tax reform we will pursue will be based upon six key principles.
First, it must promote a stronger economy building jobs, growth and opportunity. A stronger economy provides our society with more jobs and higher incomes, as well as the opportunity and conditions for entrepreneurship and innovation.
Second, any reform must be fit for purpose in the modern economy. We have a tax system with 1950s rules that simply doesn't fit with a modern, globalised economy.
Third, tax changes must encourage workforce participation and ensure families control their own money. Higher tax rates provide a disincentive to economic activity.
Fourth, generally, you should not be taxed until you have earned the income.
Fifth, reform must encourage innovation and opportunity, and reward for effort. We need to continue to make it easier for entrepreneurs to get new businesses up and running.
Sixth, as best as possible, the revenue raising capacity of each tier of government should be aligned to responsibilities of funding and service delivery.
It is for all of these reasons that the Australian Government is working with the states and territories and other key stakeholders to create a better tax system based on the best needs of Australia's rapidly changing economy.
Our goal for taxation reform is unchanged. We want lower, simpler and fairer taxes. We need to relieve the tax burden on Australian families and unlock our nation’s full potential.