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WHAT MAKES A SUCCESSFUL
TAX STATE?
Prosper Society, 2 September 2015
Miranda Stewart
Professor and Director, Tax and Trans...
The long view: what is tax for?
“defraying the necessary expence of
any great and civilized state … this
expence must, the...
3
Of course, government paid for by taxes
must be legitimate
The Eureka Stockade Rebellion, Australia, 1854
4
“That it is the inalienable
right of every citizen to
have a voice in making the
laws he is called upon to
obey
– that t...
What is tax for?
• Public goods (benefit of government)
Some goods ‘though they may be in the highest degree
advantageous ...
20thc tax: The View from 1915
6
HOUSE OF REPRESENTATIVES
INCOME TAX ASSESSMENT BILL
Second Reading
SPEECH
Wednesday, 18 Au...
Introduced by Billy Hughes
“A courageous effort of the
Australian legislature”
(Sir Josiah Stamp)
Rate of tax on income from personal exertion
Rate of tax on income from property
Australia: taxes in the last century
9
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
1902-03 1912-13 1922-23 1932-33 1942-43...
2015-16: Cth Government
Expenditures
10
Types, trends in transfers % GDP
0
1
2
3
4
5
6
7
8
9
10
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1...
Cash transfers % of GDP
0
2
4
6
8
10
12
14
16
18
20
Spain Japan Netherlands OECD Switzerland United
Kingdom
New
Zealand
Un...
But we still don’t like paying it
13
Tax principles
• Efficiency – I prefer, the goal of Prosperity
• Fairness
• Resilience – in our social-ecological context
Size of tax (wedge)
Quantity0
Price
Price buyers
pay
Price sellers
receive
Demand
Supply
Price
without tax
Quantity
withou...
Resilience
• Systems theory: The capacity of a system to
continually change and adapt yet remain stable
within critical th...
Tax system resilience
• Stable
• Resistant to planning
– Actual economic behaviour; and planning/arbitrage
• Low complianc...
Resilience: a new stable tax state?
18
Adaptive cycles in systems
Source: Walker (2004)
Tax level and tax mix % of GDP;
comparative context
20
Per cent of GDP
Note: Excludes superannuation contributions
(but in...
Cth Budget papers 2015-16:
The “credible path to surplus” and
bracket creep
Marginal, average PIT rates
2014/2015
0
10
20
30
40
50
60
0
8
16
24
32
40
48
56
64
72
80
88
96
104
112
120
128
136
144
152...
Marginal, average PIT rates 14/15
0
10
20
30
40
50
60
0
8
16
24
32
40
48
56
64
72
80
88
96
104
112
120
128
136
144
152
160...
Effective tax rates on different forms of saving
(32.5% marginal rate)
Assumes 6% nominal return. Nominal effective margin...
Net rental losses as a tax shelter
25
-15
-10
-5
0
5
10
15
20
25
30
35
40
$Billion
Gross rent
Rent interest deductions
Ren...
Tax expenditures for super
Source: Murray (2014 Chart 6 p 138). The data comes from Treasury calculations based on 2011-12...
State governments
Federalism Draft Discussion Paper, Fig 1: VFI
27
State taxes, 2012-13
% of tax in State tax mix (incl. GST)
0%
5%
10%
15%
20%
25%
30%
35%
40%
GST
allocation
Payroll tax Lo...
Property tax as % of GDP
29
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
United
Kingdom
Canada United
States
Japan Ko...
Stamp duties; land tax switch
• Duties are the second largest tax base
– High but volatile revenues in capital cities
– Lu...
Thank you!
Questions
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Tax State Resilience

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Professor Miranda Stewart presents on "What Makes a Successful Tax State?' at the 124th Annual Henry George Dinner. She takes us through the history of Australian taxes and asks what we need to do to address the resilience issue in light of future challenges. Read the transcript and see the powerpoint at https://www.prosper.org.au/2z9

Publicada em: Economia e finanças
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Tax State Resilience

  1. 1. WHAT MAKES A SUCCESSFUL TAX STATE? Prosper Society, 2 September 2015 Miranda Stewart Professor and Director, Tax and Transfer Policy Institute, The ANU
  2. 2. The long view: what is tax for? “defraying the necessary expence of any great and civilized state … this expence must, the greater part of it, be defrayed by taxes of one kind or another; the people contributing a part of their own private revenue in order to make up a public revenue to the sovereign or commonwealth.” 2 “That sure, steady, and permanent revenue which can alone give security and dignity to government … for a great nation”
  3. 3. 3 Of course, government paid for by taxes must be legitimate The Eureka Stockade Rebellion, Australia, 1854
  4. 4. 4 “That it is the inalienable right of every citizen to have a voice in making the laws he is called upon to obey – that taxation without Representation is tyranny.” And representative…
  5. 5. What is tax for? • Public goods (benefit of government) Some goods ‘though they may be in the highest degree advantageous to a great society are, however, of such a nature that the profit could never repay the expenses to any individual or small number of individuals and which it therefore cannot be expected that any individual or small number of individuals should erect.’ (A. Smith, 1776) 5  Redistribution (inequality) ‘Taxation can become a regulating factor in the distribution of national income and wealth, generally by modifying the distribution brought about by free competition. … this second, regulatory purpose to interference with the uses of individual incomes and wealth … is a ‘social welfare’ concept beside the ‘purely financial’ one’(A. Wagner, 1893)
  6. 6. 20thc tax: The View from 1915 6 HOUSE OF REPRESENTATIVES INCOME TAX ASSESSMENT BILL Second Reading SPEECH Wednesday, 18 August 1915 BY AUTHORITY OF THE HOUSE OF REPRESENTATIVES
  7. 7. Introduced by Billy Hughes “A courageous effort of the Australian legislature” (Sir Josiah Stamp)
  8. 8. Rate of tax on income from personal exertion Rate of tax on income from property
  9. 9. Australia: taxes in the last century 9 0 5 10 15 20 25 30 35 0 5 10 15 20 25 30 35 1902-03 1912-13 1922-23 1932-33 1942-43 1952-53 1962-63 1972-73 1982-83 1992-93 2002-03 2012-13 Per cent of GDPPer cent of GDP Australian Government State and local governments GST
  10. 10. 2015-16: Cth Government Expenditures 10
  11. 11. Types, trends in transfers % GDP 0 1 2 3 4 5 6 7 8 9 10 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Other Unemployment Other family benefits Family Allowances Incapacity Survivors Age 11
  12. 12. Cash transfers % of GDP 0 2 4 6 8 10 12 14 16 18 20 Spain Japan Netherlands OECD Switzerland United Kingdom New Zealand United States Canada Australia Korea OECD (2014); 2012 year statistics 12
  13. 13. But we still don’t like paying it 13
  14. 14. Tax principles • Efficiency – I prefer, the goal of Prosperity • Fairness • Resilience – in our social-ecological context
  15. 15. Size of tax (wedge) Quantity0 Price Price buyers pay Price sellers receive Demand Supply Price without tax Quantity without tax Quantity with tax And the quantity declines. Basic model: economics of a tax 15
  16. 16. Resilience • Systems theory: The capacity of a system to continually change and adapt yet remain stable within critical thresholds (Brian Walker et al 2004) • Or successfully transition to a new viable state 16
  17. 17. Tax system resilience • Stable • Resistant to planning – Actual economic behaviour; and planning/arbitrage • Low compliance, administrative costs • Adaptable to change, eg – Work – Family structures – Business and investment approaches – Digital global economy – Broader social or economic needs, eg environmental sustainability • Over short, medium- to long-term horizon 17
  18. 18. Resilience: a new stable tax state? 18
  19. 19. Adaptive cycles in systems Source: Walker (2004)
  20. 20. Tax level and tax mix % of GDP; comparative context 20 Per cent of GDP Note: Excludes superannuation contributions (but includes social security taxes of other countries) 0 5 10 15 20 25 30 35 40 Netherlands OECD - Average United Kingdom Spain New Zealand Canada Japan Australia Switzerland United States Korea Taxation on income, profit and capital gains Social security contributions Taxes on payroll and workforce Taxes on property Taxes on goods and services Black line indicates company tax OECD (2014); 2012 year statistics
  21. 21. Cth Budget papers 2015-16: The “credible path to surplus” and bracket creep
  22. 22. Marginal, average PIT rates 2014/2015 0 10 20 30 40 50 60 0 8 16 24 32 40 48 56 64 72 80 88 96 104 112 120 128 136 144 152 160 168 176 184 192 200 208 216 224 232 240 248 256 264 272 280 288 296 304 312 320 328 336 344 352 360 368 376 384 392 400 Marginal Tax Rate (headline) Marginal tax rate (including medicare levy and budget repair levy) Average Tax Rate 22
  23. 23. Marginal, average PIT rates 14/15 0 10 20 30 40 50 60 0 8 16 24 32 40 48 56 64 72 80 88 96 104 112 120 128 136 144 152 160 168 176 184 192 200 208 216 224 232 240 248 256 264 272 280 288 296 304 312 320 328 336 344 352 360 368 376 384 392 400 Marginal Tax Rate (headline) Marginal tax rate (including medicare levy and budget repair levy) Average Tax Rate Min. Wage Female Median Male Median Female Av. wage Male Av.wage Top 10% taxable income Top 1% taxable income
  24. 24. Effective tax rates on different forms of saving (32.5% marginal rate) Assumes 6% nominal return. Nominal effective marginal tax rates by savings vehicles for an individual on 32.5 per cent marginal tax rate (plus 2 per cent Medicare levy). Does not take account of negative gearing. (Re:Think 2015) -10 0 10 20 30 40 -10 0 10 20 30 40 Bank account Own home Property Superannuation (out of pre-tax income) Domestic shares Foreign shares Per centPer cent 24
  25. 25. Net rental losses as a tax shelter 25 -15 -10 -5 0 5 10 15 20 25 30 35 40 $Billion Gross rent Rent interest deductions Rent - capital works deductions Rent - other rental deductions Net rent ATO tax statistics 2012-13
  26. 26. Tax expenditures for super Source: Murray (2014 Chart 6 p 138). The data comes from Treasury calculations based on 2011-12 data from the Australian Tax Office. 26
  27. 27. State governments Federalism Draft Discussion Paper, Fig 1: VFI 27
  28. 28. State taxes, 2012-13 % of tax in State tax mix (incl. GST) 0% 5% 10% 15% 20% 25% 30% 35% 40% GST allocation Payroll tax Local government taxes Stamp duty on property Non-tax resource royalties Motor vehicle taxes Land tax Insurance taxes Gambling taxes Other taxes
  29. 29. Property tax as % of GDP 29 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% United Kingdom Canada United States Japan Korea Australia Spain New Zealand Switzerland OECD - Average Netherlands
  30. 30. Stamp duties; land tax switch • Duties are the second largest tax base – High but volatile revenues in capital cities – Lumpy, unpredictable – Why borrow upfront (and pay interest) to pay a lumpy tax when can – Duties on insurance are the most inefficient • Land tax – Harmonize base; change land unit – Possible different flat rates in States? – Low flat rate? (Prosper suggests 6%?) • Political transition; existing land-owners will bear tax on reform – A.C.T challenge to 2032? • Revenues will be needed if reform is done, at least in short term 30
  31. 31. Thank you! Questions

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