CPA Australia Argues For Income Tax Reform

by Mary Swire, Tax-News.com, Hong Kong

19 March 2004

Australia's leading professional finance and accounting body, CPA Australia, has released a discussion paper which proposes a series of reforms for Australia's personal tax system, including the slimming down of the country’s five-tier income tax system.

The discussion paper, entitled ‘Reforming Australia's personal tax system – a model for the future’, considered 18 alternative personal tax scale models. The recommended model, if implemented, would call for the creation of three tax brackets replacing the current five. The proposals call for a 16% rate on taxable income up to $24,000; a 29% rate between $24,001 and $50,000; and a 40% rate on income over $50,000.

“The payoff for implementing this type of model includes a positive ongoing contribution to GDP, increased community saving and investment, a reduction in tax avoidance and evasion, and reduced tax administration and compliance costs,” argued CPA Australia's chief executive, Greg Larsen.

Other reform initiatives proposed by the discussion paper aim to push back the compliance costs for both individuals and the government agencies that administer tax laws in respect of individual tax return obligations. These include: introducing an income statement option for taxpayers with very straightforward affairs; introducing withholding taxes on dividend and interest; replacing the current work related expense provisions with a $300 tax rebate; and introducing a tax-free de-minimus amount for small capital gains of $5000.

“The rate at which our highest marginal rate kicks in is low by international standards,” continued Mr Larsen. “Too many low and middle income families pay excessive high effective marginal tax rates. And the individual compliance associated with our income tax laws is also an ongoing problem that requires urgent review.”

He added: "CPA Australia's policy for many years has been that Australia needs a tax system based on the 30/30/10 principle, where the first two thirties are the top personal tax rate and the company rate, and the 10 per cent rate is the GST."

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