Discussion paper

Taxation and social security system reform

18 Mar 2013


General observations

The case for reform of the taxation and social security systems, together with reform blueprints, were provided in the Henry Review released in May 2010. To the Henry Review reform proposals should be added a more comprehensive and higher rate GST, and the option of no-bars reform of the taxation of superannuation, both of which were excluded from the review’s terms of reference.

A comprehensive taxation reform package could involve any one of, or a combination of, the following:

  • A comprehensive income tax base which removes current exemptions, such as the concessions for remuneration taken as fringe benefits and superannuation, and a simple progressive tax rate schedule which is automatically indexed for inflation;
  • Greater neutrality of the effective tax rates on different saving and investment choice options, and a low rate on the taxation of capital income to reflect the relatively high elasticity of supply of capital to Australia;
  • Increased taxation revenue from comprehensive tax bases on the economic rent earned on land, mineral and energy deposits (to replace current royalties), and other natural resources;
  • Greater revenue from a comprehensive GST base along the NZ model, and at a higher tax rate;
  • Reform of special taxes on selected products to correct market failures associated with motor vehicles, alcohol, and carbon and other forms of pollution;
  • Remove all state stamp duties; and
  • Simplify the social security system as proposed by the Henry Review.
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