Substantive tax reform needed to address long-term budget challenges: Grattan Institute
Policy think tank the Grattan Institute has called for meaningful tax reform to address long-term budget challenges.
Australia’s tax system is overly reliant on bracket creep to prop up government revenue, according to the Grattan Institute’s ‘Orange Book 2025’ policy blueprint. As the population ages and healthcare spending increases, the government will need to find equitable and efficient ways to increase tax revenue.
“Improving the efficiency of the tax system, by shifting Australia’s tax mix from more-costly to less-costly taxes, could materially boost Australians’ living standards,” the policy blueprint read.
“In the longer term, more revenue will also be needed to manage the budgetary costs of rising community expectations and an ageing population, especially if economic growth remains lower for longer.”
According to the Grattan Institute, Australia should reduce income tax breaks, broaden or raise the GST, replace stamp duties with land taxes, redesign resource rent taxation and adjust wealth and inheritance taxes.
Curbing income tax breaks could raise more than $20 billion a year and reduce the distortion of economic behaviour, the think tank found.
For example, the capital gains tax discount and Australia’s “unusual” negative gearing settings distort the housing market, putting upward pressure on house prices while providing limited supply benefits.
The submission also argued that superannuation tax concessions “go far beyond their intended purpose and should be tightened.” This would align the tax breaks with the goals of superannuation and save the budget at least $10 billion a year.
It added that inheritance taxes, despite being unpopular, have substantial economic merit. Ending the overly generous tax treatment of the family home and hefty superannuation tax breaks would allow the government to stop subsidising inheritances.
The Grattan Institute also called on the government to scrap inefficient taxes such as stamp duty, and ramp up taxation on resources.
Stamp duty discouraged people from moving to houses and jobs that better suited their needs and skills, and the submission argued that it could be replaced by a land tax.
Furthermore, the think tank said that Australia should increase the taxation of natural resources. Despite being a major fossil fuel exporter, Australian government revenue from fossil fuels is small. The think tank argued that Australia should impose resource rent taxes on coal and iron ore, alongside critical minerals, which will see increasing demand due to the global energy transition.
It also called for the GST to be broadened or increased to address rising cost pressures faced by state governments in healthcare and education.
“There are many concessions and minimisation opportunities in Australia’s personal income tax system,” the submission said.
“Curbing these ‘leakages’ would broaden the income tax base and, over time, reduce governments’ temptation to rely on bracket creep to do the ‘heavy lifting’ on budget repair.”
