OPINION: A big, bold policy would be a flat tax of 25 per cent on personal capital income that would be a simpler and more equitable than the current hotchpotch of tax breaks.
, probably next year when he is armed with several economic reports, about more sustainable spending and revenue alignment.The documents will include the Intergenerational Report that will show the 40-year spending pressures on the budget from big social welfare, defence and debt interest costs, a Productivity Commission five-year review and a Treasury tax expenditures statement that will be more transparent about the costs to future generations of tax breaks.
It would be a very Labor reform that could assist hard-working wage earners, while delivering fairness and efficiency. A flat tax rate of, say, 25 per cent on personal capital income and deductions would be a simpler and more equitable system than the current hotchpotch of concessions and distortions. It would help eradicate the “tax planning” Kennedy lamented.Currently, a property investor has their capital gains taxed at half their marginal tax rate. For a high-income earner, that equals a top tax rate of 23.5 per cent.
Investment losses would be carried forward to offset against future capital income, not immediately or fully deductible against wages.It may be possible to deduct a portion against wages and salaries, but only the dollar amount determined by a flat 25 per cent capital income rate.Otherwise, selectively picking off individual tax breaks without a comprehensive approach just leads to tax planners shifting to remaining loopholes.
Income tax cuts would be limited to wage and salary earners, and not flow through to tax breaks on capital income. It would be more affordable for the budget.For years, the Coalition government leaked billions of dollars of tax refunds for “unearned” or passive investment income through the $8 billion annual low and middle income tax offset.
Longer-term, a dual income tax system may present an opportunity to lower the top personal income tax rate for labour income closer to the capital income rates and the 30 per cent corporate rate.Former Labor prime minister and treasurer Paul Keating has consistently advocated cutting marginal tax rates, including the maximum 47 per cent rate that kicks in at a $180,000 a year.