The Australian Federal Government has recently launched 'Re:Think Tax' - seeking radical tax reform proposals.
However, the proposals discussed publically appear to be little more than suggestions for shifting the burden between different forms of taxation that are already in use.
As part of a review of Federation, the Government has also mooted handing back income tax powers to the States.
Unfortunately, such a proposal would only lead to income shifting, while adding a huge amount of complexity for both business and individuals... as well as hugely increasing the tax bureaucracy. It would do little for equity or productivity.
There is a much better way.
Goods, Services and Assets Tax (GSAT) Overview
This is a new tax system that takes advantage of the digital economy.
Importantly, it allows the States to collect their own tax, while reducing complexity, overlap and cost. It also removes the incentive for business to shift to 'low tax' jurisdictions... and ensures support for low income earners.
Essentially, GSAT is a:
Flat % Tax Collected on Expenditure (like a broad-based GST), with some major differences...
It is turned into a Progressive Tax on Income using a 'simple system of rebates'.
All prices would be ex-tax and all income/sales proceeds would be paid gross into nominated bank accounts.
Tax would be payable on all withdrawals - no exceptions.
This has two key benefits:
1. It allows us to move the collection point from business to banks... greatly simplifying administration (and cost to both government and business).
2. More importantly, it allows each government to set its own tax rate to pay for its own electoral mandate.
This can be done, because the taxpayer's place of residence can be associated with each bank account and used to determine the specific rates that apply to them.
With this flexibility, GSAT could replace all other taxes: income, capital gains, payroll, GST, stamp duty, etc.
Average Tax Rate
Based on Treasury/ABS data, the rate would average around 25% of income from all sources (including real realised capital gains) - when spent.
NOTE: If income is $100: 25% income tax = $25, leaving $75 for expenditure. 25 tax/75 expenditure = 33% expenditure tax.
Payment of Rebates
To avoid tax on tax and to turn the flat expenditure tax into a progressive tax on income, a simple system of rebates would be paid on demand (as transactions occurred) - subject to audit.
Specific Rebates would be for:
Tax paid on cost of sales - so no business would expense tax (like GST).
Unlike GST, you would also get rebates for:
Tax paid on all assets (when re-sold) - adjusted for inflation, and
Any money transfers, eg gifts, bequests and loans.
These rebates turn the flat 33% tax on expenditure into a flat 25% tax on real income.
This flat income tax can be very simply turned into a progressive income tax by also paying a General Rebate - a flat amount (say) $6,667 pa to every Resident over 15.
In this case, a person with zero income would get a net benefit from the rebate of $5,000 (after paying 33% expenditure tax of $1,667).
A person on $20,000 would pay no tax. Essentially the rebate would pay their tax.
On $100,000 a person would pay 20% net tax, while
Someone earning $1,000,000 would pay net tax of almost 25% (the top rate), after the rebate.
GSAT provides an innovative opportunity for each Government to take control of their own destinies without adding layers of complexity for themselves, business and taxpayers in general. In fact, by replacing most other taxes the admin burden would be massively reduced overall, while enhancing both equity and productivity.
Summary Paper and Detailed Submission
The attached 5 page summary (plus tables) provides more detail, including 25 reasons why this system will benefit business, government and everyone else.
The Full System is explained in an 84 page submission made to the Governments Re:Think Tax review under the name 'UniTax' (Since renamed GSAT).