The estimated cost of the nation’s ageing population – and suggested ‘solutions’ – has again come to the fore with the release of the Australia 2021 economic survey, the first OECD snapshot of the country in almost three years.
The Paris-based Organisation for Economic Cooperation and Development, headed by former finance minister Mathias Cormann, released the report on Wednesday and urges the federal government to outline its strategy to meet ageing-related costs.
It warns that our ageing population will result in lower tax revenue, “meaning the declining share of people in the labour market … will have significant implications for receipts”.
Among the key recommendations on the table, the report urges a review of the tax benefits afforded nest eggs over a certain size, an increase in the GST, a lowering of the capital gains tax discount, a cut in government red tape and stamp duty replaced with a land tax. It also highlights Australia’s lack of an inheritance tax.
The report says that Australia’s goods and services tax rate is “relatively low” compared with other OECD countries and raises a relatively small share of revenues.
“Over the past decade, revenues from the GST have been falling as a share of total taxes and will continue to do so if recent changes to the pattern of household consumption persist,” it says.
“Authorities should aim to increase the overall contribution of GST revenues to its tax mix once the economic recovery is firmly entrenched. However, careful consideration should be given to the distributional effects.”
According to an ABC fact check, the average rate of GST in OECD countries in 2015 was 19.2 per cent. Only three OECD countries had lower GST tax rates than Australia. It said that overall, Australia collects about 7.5 per cent of its GDP from taxes on goods and services, while the OECD average is 11 per cent.
The OECD report also says the federal government should consider reducing our “too generous” capital gains tax discount and tax concessions for private pensions, particularly those that favour high-income earners.
“For example, the annual concessional contributions cap could be lowered, and private pension earnings in retirement (untaxed for balances below $1.6 million) taxed at the same rate as private pension earnings before retirement.”
It adds that intra- and intergenerational inequalities are worsened because older and higher income households have a relatively high share of assets in pension funds and because Australia does not have an inheritance tax, after it was abolished at both the state and federal levels 40 years ago.
It also recommends state governments “replace stamp duty with a well-designed recurrent land tax”.
The OECD warns of the implication of bracket creep for average income earners, even with the legislated tax cuts. “Bracket creep is likely to result in the average personal tax rate of many workers rising over the period to 2030, especially those in the low to middle part of the income distribution,” it says.
Red tape was singled out as a drag on productivity, with pointed references to land use permit systems.
“Regulatory procedures are relatively complex and the licensing and permit system is cumbersome compared with other OECD countries,” it states. “As well as harmonising and simplifying the land-zoning system at the state level, giving local authorities more fiscal autonomy can encourage them to allow the entry of new businesses or households.”
What do you think about a hike in the GST? Or fewer tax concessions on super pensions? Are you wary of reports about the burden of our ageing population? Why not share your thoughts in the comments section below?
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