Noel Whittaker tells how to simplify our tax system

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Gus echoes the complaints of many – that our tax system is too complicated. He asks personal finance expert Noel Whittaker how it could be simplified.

•••

Q. Gus
Is our tax system too complex for the ordinary tax-paying person? Do you believe it should be simplified? What changes would you propose?

A: I am not sure if it’s too complex for the average person, but I do think it’s unfair when a person who earns just $37,000 a year has to pay one-third of any future earnings in tax. Of course, it gets worse as people move up the tax scales, and once they reach $180,000 a year they are losing nearly half of any extra income and tax.

In my opinion, the most obvious and simplest way to reform our tax system is to flatten the marginal tax rates, and increase our Goods and Services Tax (GST) to 15 per cent with no exemptions. This is what has been done in New Zealand. That country runs a budget surplus and has no stamp duty, payroll tax or capital gains tax.

Do you have a question you’d like Noel to tackle? Email us at [email protected]

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

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Written by Noel Whittaker

139 Comments

Total Comments: 139
  1. 0
    0

    I agree with Noel, simplify the tax system to a flat tax (the more you earn, the more you pay), do away with tax returns etc., increasing the GST to 15% is a sensible measure.
    Pensioners and low income earners will need to be supplemented though.

    • 0
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      Problem with that is that the higher salaries etc have been made as high as they are so as to incorporate the current higher income tax bracket, and still provide an income (allegedly) in keeping with the job.

      If you suddenly change that, the highest paid wage and salary earners will receive a windfall, while the rest will get nothing…..

      Never as simple as it sounds – and you try telling some highly paid person that in order to receive the same now under any new income tax regime, he/she should take a salary cut to match, thus ending up with the same amount.

      Flattening the income tax rate will leave those on lower incomes in precisely the same spot, and would only benefit those on higher wages and salaries.

      Sorry ’bout that… but unless you want to go full socialist and arbitrarily level out wages and salaries, it will never work.

    • 0
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      Good idea why not give the highest paid a nice windfall as they deserve it.

    • 0
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      … always good for a laugh, OG…. why not just hand them all the cash and let them dispense it at whim?

    • 0
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      This is what this government wants and the usual so called posters are running the line as
      normal.

      Noel – if you think completing a tax return is simple then avoid the CGT section. A total nightmare and some of it makes little sense.
      If you think paying a flat rate is fair then I’d suggest there are arguments each way.
      This bring high income earners down from 48 cents in the dollar to 15 cents in the dollar. Of course the revenue lost from the few at the top who actually have to pay the top rate will have to be made up with the bottom paying more tax. Is that fair?
      Of course returns would be simpler although CGT and negative gearing would remain. May do away with these inconvenient taxes too??????? Come on in OG.

    • 0
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      Right on cue MICK with your party line. This government has never said that this is what it wants. Usual scare tactics as per Labor Handbook. It doesn’t suit your posts but the top 10% of wage earners pay 50% of the tax income. They carry quite a load, MICK.

    • 0
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      Someone clarified that, OM – the top 10% of net income earners pay 50% of income ta… the reality is that they do not pay tax, unless on salary or wages, on total income.

      As someone said – the real burden of tax falls on the salary and wage earner, who has no bolt-holes to provide his/her car, home base, dinners, etc….

    • 0
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      Its hard to justify your government OM. Nowhere to go.
      Your continued crap about “the top 10% of net income earners pay 50% of income tax” is the repeated BS. Given that the top 1% earn multiples of the average wage the measure is limp at best.
      Humour us with THE TAX THE TOP 1% AS A PERCENTAGE OF THEIR INCOME. That will impress me. Provide the figures please.

  2. 0
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    This is a subject worthy of wide debate. A ‘flat tax’ is only one option of many.
    One thing that always disturbed me about the Howard tax reforms (which included introduction of the GST) is that there was no community debate and certainly no electoral mandate. In 1999, apart from making a few compromises to the Australian Democrats, the GST was pushed through by the Howard government coming into effect on 1 July 2000.
    In 1993 the Liberals, under John Hewson, snatched defeat from the jaws of victory with the GST as their central policy and resulted in John Howard, the next Leader of the Opposition, later declaring the GST was dead.
    Interesting point is that after Meg Lees let the GST pass the senate the Australian Democrats slithered into oblivion, this maybe ,or maybe not, be an indication of the communities displeasure at the GST.
    Let us have a wide ranging tax debate, we may eventually come up with a better system. The GST model may be the best tax system for Australia but without a discussion of the alternatives we simply do not know.

    • 0
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      Just one small point, Eddy, Howard took the GST to an election. Voters were told that it was Liberal policy before the election; it was the subject of great community debate and there was an electorate mandate.

    • 0
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      Sorry Old Man, your recollection of those events is totally different to mine. I can clearly remember JH stating that there would be no GST under his government. The Liberals may be a lot of things but stupid is not necessarily one of them. No liberal leader would take the GST to an election after the debacle of 1993. I also believe JH was heading to an election loss to Kim Beazley in 2001 until fortuitous fate delivered him the MV Tampa.

    • 0
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      You’re right, Eddy, “Never, ever” was Howard’s pledge to voters. And then a sweet deal with Meg Lees.

    • 0
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      The following is an extract from an ABC story recognising 10 years of GST. Yes, Howard did say “never, ever” but changed his mind:
      “A GST-type tax was first proposed in 1975. A serious consumption tax proposal was rejected by the Hawke Labor government in 1985. It was again proposed in the early 1990s by John Hewson. After being asked to explain how his tax would impact the price of a birthday cake the proposal was deemed too complicated by a sceptical electorate. At the 1996 election the Liberals promised ‘never ever’ to introduce a GST and went on to win government.

      ‘Never ever’ lasted about two years – John Howard fought the 1998 election with the introduction of a GST as the party platform. It was a close run affair – the government scraped back in having lost the popular vote but winning enough seats to retain office. The GST experience ultimately destroyed the Democrats. The Labor Party promised to ‘roll-back’ the GST with Wayne Swan describing it as a ‘bastard tax’, but lost the subsequent election. Two elections were fought over the GST, three if you count 2001 and the ALPs somewhat vague roll-back promise.”

  3. 0
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    Howard campaigned on the GST mandate for his 2nd term. Most ppl know that.Meg Lees stuffed the GST and left us with the state taxes we have today. Cos the poor ppl wanted it. Gst on state services is illegal. ie. Power.transport.vehicle rego. Etc. But nobody wants to touch that subject.

    • 0
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      I remember the words: “the GST will never be allowed to go higher than 10%”. A colleague of mine said to me it was guaranteed it would. So here we are.

  4. 0
    0

    No problem – let’s say Joe Fatt is on the highest tax bracket (let’s make it 50% for ease of figuring), on a salary of (for ease of figuring) $200,000…….

    If you make the tax rate 25% – in order to have the exact same net income Joe Fatt would need to salary drop:-

    50% of $200,000 = 100,000 .. remainder 100,000.

    25% of $133,333 = 33,333 … remainder 100,000.

    Now go ahead and persuade the guy on $200k that he is as well off on $133k…… good luck – and what about his/her ‘prestige’ from drawing a nice big Fatt salary? Who would forego that?

    Meanwhile persuade Jo Thinn that charging her 25% of less than $37k (current lowest tax bracket) will somehow make it all equal….. when she pays more.

  5. 0
    0

    No problem – let’s say Joe Fatt is on the highest tax bracket (let’s make it 50% for ease of figuring), on a salary of (for ease of figuring) $200,000…….

    If you make the tax rate 25% – in order to have the exact same net income Joe Fatt would need to salary drop:-

    50% of $200,000 = 100,000 .. remainder 100,000.

    25% of $133,333 = 33,333 … remainder 100,000.

    Now go ahead and persuade the guy on $200k that he is as well off on $133k…… good luck – and what about his/her ‘prestige’ from drawing a nice big Fatt salary? Who would forego that?

    Meanwhile persuade Jo Thinn that charging her 25% of less than $37k (current lowest tax bracket) will somehow make it all equal….. when she pays more.

    • 0
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      Double whammy? Hmm ..

      Never Going To Work!! Forget this thought bubble….

    • 0
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      Are you suggesting that income tax be abolished and only a GST left TREBOR? Not sure where you are going with this.

    • 0
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      Just point out why this idea will not work unless it involves another freebie for the fat end of town.

      Try getting my cousin’s hubby – a Deputy DPP, to accept a lower salary in return for lower tax… he’d cry for a week… that’s his status symbol since he has no real need of money these days.

  6. 0
    0

    A flatter tax and a higher GST will disadvantage low income workers and those on pensions etc even more as they have the highest propensity to spend and the lowest propensity to save. The conversation is true for the higher income people.

  7. 0
    0

    Some time ago a person work worked in the tax office told me that they had done some
    sums and found that it was possible to replace all taxes with a withdrawal tax. Every withdrawal from a bank account would automatically have percentage paid directly to the tax office. No exemptions , no deductions. It would get rid of the whole tax avoidance industry and make many accountants and tax office staff redundant(can’t be all bad).
    Since all cash and electronic withdrawals are from banks no one could escape and with modern computer systems it would not require any paperwork. No more tax returns!

    • 0
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      Again the problem is with those on fixed low incomes, who would suddenly be paying a ta they were not paying before….

      Are you advocating exemptions or a bonus to compensate?

      Say you make a 2% transaction tax (and abolish others etc) – a pensioner/social security recipient spends all his/her money…. and thus now pays 2% of it… in the case of pensions – around $18 a fortnight or so.

      Might not sound much to some, but it’s a lot to those with not much discretionary.

    • 0
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      Sure – and then people would hide most of their money in dark places, apart from salaries which are paid into an account these days. All the tradies would want cash again and we the people would oblige with no GST payable. We had a Financial Institutions Duty 30 years ago in Victoria, every time money went in you paid and the same when you took it out again. Do not know what happened to it but it is no longer there.

    • 0
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      Yes, C-Jim – the wage and salary earners would be caught up in it without any bolt-holes.

    • 0
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      Trebor, those on fixed incomes can be compensated as they are now for certain things. I note that ALL money comes out of a bank account at some time and goes into a bank account sometime. So why would it matter if you pay someone in cash?, the tax on its withdrawal has already been paid. All business would have to pay a fair share of tax cos it would come out of their accounts automatically even if they decided to take out a million dollars at a time.
      The Victorian FID was an additional impost not a substitute for other taxes, no wonder it disappeared as it should. A withdrawal tax would replace the vast majority of taxes(details to be worked out). Without knowing how much is withdrawn from accounts each year I don’t know what percentage would be(i sure there are those who could work it out).

    • 0
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      Yes, pedro, but the issue is the amount of compensation and how it will last, given that it is not ‘indexed’ to cover future rising costs.

      It’s a very complex calculation, and seems to me to make any rise etc in GST not worth the trouble.

  8. 0
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    Make the rich and big business pay their fair share in tax – simple.

    • 0
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      If this were done, Knows a Lot, it would solve all of Australia’s problems.If the big gas exploitation companies had to pay proper royalties and tax on their vast gas production and exports Australia would be rolling in it like The oil and gas rich Middle East countries. But of course this won’t happen as our governments always look after these businesses.

    • 0
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      The rich and big business do pay their fair share of tax in accordance with Australian tax laws, Knows-a-lot. If you have a problem with that you should blame the legislators, not those who are paying tax in accordance with the law.

    • 0
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      Shows the need to update company and business tax rules…. too many bolt-holes for a free ride.

      Very, very few companies here even pay their full company tax on their net earnings….

    • 0
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      You’ll never get the rich and big business to pay their fair share of tax, K-a-lot, until we stop electing multi millionaires into parliament. Once in parliament they set about increasing their multi millions with tax cuts and sweeteners.
      As an example Malcolm Turnbull axed the Gold Pass to save taxpayers’ money…except for formert Prime Ministers, of which he is one. Former PMs Turnbull, Rudd, Keating, probably Hawke, all multi millionaires and well able to pay their own plane fares.

    • 0
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      Exactly, K-A-L. Alexii is also right – we are a massively resource-rich country where we don’t even need a GST (other than taxes on foreign goods & companies) or Income Taxes, if we get the full benefits from our resources just like the Middle East countries. We have been badly let down by our political parties on BOTH sides.

      OM is right too – these legislators have let us down badly, as ATO knows how many rich & big business pay NIL taxes or NEGLIGIBLE taxes, yet these Liberal & Labor parties have done nothing to fix it. How hard is it to implement Minimum Taxes on Gross Income without any deductions? At least, while you sort out the massive number of loopholes we currently have?

      Of course, Noel represents the rich & the business – his solution would hand over massive windfalls to the rich, while lower income people would pay massively more tax (in proportion to their income) through an increased GST especially one which includes essential items such as fresh food. I also recall all other taxes (including payroll, stamp duty, even excise on petrol) were to be deleted when the GST was brought in – shocking example of the tricky implementation by the Libs under J. Howard.

    • 0
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      No-one pays TAX on their NET Earnings, you may need to change your medication.

  9. 0
    0

    APPALLING ideas! A flat tax is regressive – hitting the poor hard. Ditto the GST. 15% is way too high, bearing in mind the rise in the cost of living is already outstripping income growth.

  10. 0
    0

    Add up state taxes. The GST is probably around 20%.

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