Goldstein Policy Discussion: Taxation Reform Sinclair Davidson

Tax Facts RMIT University © 2015 Economics, Finance & Marketing 2

Tax Facts RMIT University © 2015 Economics, Finance & Marketing 3

Tax Facts High Income Individuals pay the bulk of personal income tax. RMIT University © 2015 Economics, Finance & Marketing 4

Tax Facts RMIT University © 2015 Economics, Finance & Marketing 5 Large corporations pay the bulk of company tax.

Principles of Taxation Adam Smith. –Proportional. –Certain. –Convenient. –Economical. Treasury. –Raise Revenue. –Promote Efficiency. –Distributional Equity. –Competitiveness. –Simplicity. Jean Baptiste Colbert. –Pluck the goose with a minimum of hissing. RMIT University © 2015 Economics, Finance & Marketing 6

Principles of Tax Reform Be clear on definitions: –Revenue = government receiving a cheque –Expenditure = government writing a cheque –Refunds are not expenditure –“Tax Expenditure” is not expenditure either. Promote economic activity. –Value adding activity. –Not make work, not financial sector. Be Revenue Neutral. –Offsetting tax cuts, not the money will be spent. –Taxes abolished, not rate reduction. RMIT University © 2015 Economics, Finance & Marketing 7

Reforming the GST Option 1: Do nothing. Option 2: Expand base or Increase rate. Option 3: Expand base and increase rate. RMIT University © 2015 Economics, Finance & Marketing 8

Reforming the GST My preferred option: Do nothing. Expanding base? –Education (highly subsidised). –Health (highly subsidised). –Fresh food. –International transactions (legal incidence of tax, input credits, foreign sales tax). Increase rate? –To what level? –Invitation to keep raising rate. RMIT University © 2015 Economics, Finance & Marketing 9

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