Sources of government and state revenue have come under a microscope in light of the global pandemic. And with this comes the responsibility of grant specialists to shed a light to this giant issue—taxation.  

The government must provide the best living standards of Australians. Understanding how to make the most of this is needed. There’s an opportunity to make things better for the community, for the people and for Australian businesses. It’s time to tackle the problems and to propose a system that encourages success and wealth creation, rather than entrenching poverty and dependence.

The Tax Problem

Who pays for Government?

The Commonwealth government taxes at 21% for income over $18,200 p.a.; 34% incl. Medicare from people that earn more than $37,000. Earning over $80,000 income; it rises to over 39% in tax. 

Expenditure is then taxed with another 10% as GST. Together; that is 

• 31% for earnings above $18,200; 

• 44% for people that earn more than $37,000; 

• 49% for income of more than $90,000. 

It does not account for other Commonwealth taxes and State taxes like stamp duty. It does not include local council charges.

Taxes paid by business as companies, partnerships etc. are in effect passed onto the owners or shareholders of those businesses. However, company tax rates on profit are 27.5% for small business and 30% for larger business – an additional disincentive to succeed. 

Additional taxes are paid on Capital Gains, Fringe Benefits, State Stamp Duties on asset sales, rates and many other charges. There are many other taxes on specific products or industries such as taxes on alcohol, fuel, cigarettes etc.

Government also charges for use of public resources like roads and water, often as privatized services. 

Health charges, education etc. are areas where there is confusion as to the government funded services and private contributions. While these have seen more “user pays” approaches applied, they were traditionally provided by government.  So, although taxes have risen, the contributions made outside the tax system have also risen drastically, even in areas with little spending discretion.

Tax is high…

• The only people that want to keep high taxes are the ones that don’t pay them. 

• People that want more government don’t pay for it.
• People in government or working for government are the ones who want it.

What do we get for the money?

We get ever-increasing “services”. 

Many government assistance programs are developed to “help” shape behaviour and manipulate markets. 

Many “business” programs are projects that appear to have little economic rationale but do have social inclusions and rewards. Programs are inefficient, arbitrary and illogical including governments attempting to be business advisers or appointing insider expertise.  

The plethora of state and commonwealth business programs are designed and run to provide some relevance to government agencies rather than to enable people and business to succeed.

We have the burden of government that encourages dependence and failure. Productivity and work are penalized. Doing little is rewarded. 

Restrictions and regulation provided by government are demanded by politicians and public sector employees. It is their justification. 

This must change. Work, success, savings and independence must be allowed and encouraged.

Government must be rational and minimal.

What is the answer?

Government must become more accountable for taxing and spending. High Taxes are a burden. High spending is a waste. Both must be reduced.

Designing a better financial arrangement for the government is logical. To fix the high levels of government, there are 2 clear strategies:

1. Spend less: 

Spending less is a matter of efficiency and priorities. 

1. Encourage growth:

Underpinning these two logical actions is the need for individuals and business to have: 

• More success and 
• Less dependence. 

By encouraging wealth creation, rather than penalizing it; there will be a boost to economic activity. 

Replacing welfare with paid work is essential. Many IR laws must be addressed to remove government regulation from the way people work and interact. This also applies to the restrictive nature of the existing taxation system.

The answer is to change attitude, and to change the tax and spending systems. The tax discussion here provides real solutions.

A Proposed System: A NEW Australian Taxation Approach

• Taxation policy should be based on efficient and always proportional collection of funds for government operations. Government must enable the most efficient and effective taxation system: 

• The ONLY purpose of the taxation system is to provide revenue for government operations. 
• All incentives and penalty provisions must be outside the tax system. 
• All welfare, other subsidies and wealth redistribution must be separate from the tax system so as to be completely visible.
• Economic stimulus and dampening measures must be separate from the taxation system.
• There can be no exceptions or exemptions.

• Taxation should be simple, transparent and open. The government must be accountable for the level of taxation. Government must then justify spending within those taxation levels. 
• The tax system must NOT be:

• Confused with the welfare or payments systems,
• A substitute for a wages and salaries system,
• Used as a superannuation or financial management system.

• Tax must be imposed proportionally and consistently on all economic activity and with respect to every business, organisation and individual:

• Individuals, businesses and all other organisations should be taxed on inbound and outbound value exchanges – the value of all exchanges between parties.
• Neither businesses, organisations nor individuals should have deductions. 
• There should be no exemptions, no exceptions and no rebates. Instead; all spending, stimulus and measures to encourage or discourage particular behaviour must be outside the taxation system – for two clear reasons:

• The taxation system remains simple and efficient.
• All these measures must be visible, accountable and transparent.

• Consistent taxation rules and a single tax rate must be applied to companies, trusts, partnerships, not-for-profits and individuals – they must all be the same. 
• There cannot be a distinction between the capital and non-capital value exchanges. All exchanges of value should be taxed at the same rate and therefore, in the same proportions. 
• Successive governments should be able to vary the rate but not the consistent and proportional application of tax.
• Accountants and tax professionals providing services will be accredited by the Government. They will no longer be involved in complex technical tax advisory schemes, since these will have no value. 
• The Australian Tax Office will administer a simple, computerized system, treating all taxpayers – business and individuals – in the same way.
• The National government should be the only taxing point. No other government should have income, transaction, property or wealth taxes of any kind. They may only impose simple penalties for legal breaches.

• Government should be limited in activities and expenditures. Most functions in health, education and welfare can be provided well with a successful economy and competitive services in these areas.
  

Proposed SIMPLE Tax:

To achieve a simple and effective tax system

Apply a single “standard tax rate” to all flows of value (monetary or other) between any individuals, corporations or other entities/organisations”.  Rates will be low: – much lower than income tax and less than GST. Tax must be applied to both:  

• Gross value inputs from all sources and
• All value outputs to all partiess.  

Value flows must be taxed as inward and outward movements.  Any transaction or exchange will attract tax to the rate in both directions.

Remove the notion of deductibility.  Abolish any deductions.  Remove any rebates.

• Eliminate penalties from the tax system. These should be dealt with separately and transparently. 
• Eliminate any incentive / disincentive schemes from the tax system. These should be dealt with separately and transparently. There must be no subsidies or rebates in the tax system. 
• Take the accounting complexities out.  Eliminate the legal complexities: 

• • Repeal all tax law and start again. 
  • Remove any non-tax issues, such as penalties and incentives, welfare issues and wealth redistribution. 
  • Remove all tax laws – including the Income tax assessment legislation, CGT, FBT, Superannuation and the GST legislation.
  • Rationalise all state taxes and law, including stamp duty and payroll tax.

Simplify compliance by: 

• Including tax in every transaction.
• Preparing automatic, monthly bank reconciliations, debtors, creditors and tax calculations for companies, other businesses, government organisations and individuals. 
• Providing automated electronic transaction systems for companies, individuals and other entities to link to.  Their choice for simplicity – not a control measure.
• Using accredited accounting professionals and accredited bookkeepers to prepare reconciliations or use the government system.
• Reducing impact and cost of ATO compliance. 
• Automating monthly, quarterly and annual reporting requirements and annual tax returns – a simple system.
• Auditing the providers of accounting services; not the taxpayers.

Take out all subjective matters – tax accounting must be simple and clear. 

All funds and value flows should be recorded and taxed. There are no deductions, rebates or penalty provisions. 

• When taxing outbound flows, tax the entity in the same direction – the sender of the value. When taxing inbound flows of value, tax the recipient. 
  The compliance then becomes a simple matching issue. 
• Every debit needs a corresponding credit – all individuals, businesses and other organisations must be able to account for all their value exchanges, through the regular reconciliations processes, including cash and accruals reconciliations.

For improved accountability (of the government to the people); the tax system should be tamper proof. The only variable should be the rate. Successive governments must not be able to manipulate the system or operations. If they campaign for more spending; they must show where the money is coming from.

Taxation must be simple and straight forward. The proposed simple tax would include rationalisation of:

• Capital Gains Tax

There would be no need for CGT, as all exchanges of value would be included in the simple tax. 

• Fringe Benefits Tax

There would be no need for FBT as the costs and disbursements for these would be included in the simple tax. Values attributed to employees or related parties would be included in value exchanges and subject to the simple tax.

• Goods and Service Tax

The GST system would be redundant in the simple tax system.

• Superannuation provisions.

Contrived incentives for Superannuation savings would be replaced by the built-in savings incentive of the simple tax.

The new tax system is a clear incentive for individuals to be active in the economy – working – as they are taxed much less if they succeed than in the existing “anti-success” tax system. The existing system discourages success. It discourages saving and encourages waste. 

The new system is an incentive for companies to succeed for the same reasons. It encourages profitability, rather than the existing system that specifically taxes profit or success. With the new system of taxation, business and individuals will not be penalized for success.

This process will allow all the entities and individuals to interact with the tax system and be aware of their contributions and the actual costs of tax and government on their activities. The system will make tax transparent and relevant to everyone. Finance and spending in all government departments must also be reconsidered.