Shadow treasurer Jim Chalmers would lead a tax reform “conversation” with the states and territories if Labor wins the May election while ruling out lifting tax thresholds to prevent people being pushed into higher tax brackets.
With pressure growing from business and community groups to overhaul the tax system, Dr Chalmers revealed all the states and territories are pressing for some sort of reform.
Shadow treasurer Jim Chalmers says he would help lead a talk with the states and territories over tax reform.Credit:Alex Ellinghausen
This week, the Australian Industry Group again urged the major parties to engage in tax reform, saying the economy needed changes to enable it to grow faster and provide the necessary revenues to repair the federal budget.
It canvassed overhauling the nation’s tax arrangements, increasing the accountability of all governments for the taxes they imposed and the services they delivered to voters, giving control of particular areas to the level of government based placed to administer it.
Among its proposals were ending taxes on insurance products, replacing mining royalties with resource rent taxes and using direct road user charges rather than fuel excise.
Dr Chalmers said he was open to leading a national discussion with the states and territories about improving their tax systems.
“We’ll have a conversation with the states to see if they can come to some kind of agreement on tax reform,” he told Melbourne radio 3AW.
“They’re up for a conversation, some of them are talking about swapping out stamp duty for land taxes and the like. We’re prepared to lead a conversation on those sorts of things.”
Both sides of politics have struggled to engage in substantial tax reform since the introduction of the GST in 2000.
Labor abandoned most elements of the Henry tax review it commissioned under then-treasurer Wayne Swan in the face of opposition from the Coalition and the mining sector.
Joe Hockey released a tax reform white paper called Re:Think but that came to a halt after Malcolm Turnbull replaced Tony Abbott as prime minister in 2015.
Mr Turnbull and Mr Hockey’s replacement as treasurer, Scott Morrison, did canvass possible tax reform including changes to the GST in early 2016.
The Sunday Age and The Sun-Herald this week revealed the Treasury proposed to its new minister sweeping tax changes including cuts to the top and bottom tax rates and reforms to negative gearing.
Treasury also advocated the indexation of tax thresholds. This would allow tax thresholds to increase with either the inflation rate or wages growth, effectively ending “bracket creep”.
Dr Chalmers said threshold indexation would not be pursued by Labor, arguing the size of government debt – at a record $868 billion and climbing – meant it was difficult to make substantial changes.
“You can’t isolate one part of the Budget against all of the other [factors]. We would be inheriting more debt from this government than any government has ever inherited before. There’s lots of things you’d like to do if you didn’t have these budget constraints, but you can’t do everything,” he said.
The third stage of the federal government’s long-term reform of personal income taxes kicks in from mid-2024 with large cuts to higher-income earners. It will also abolish the 37 per cent threshold in a move the government says will effectively end bracket creep.
But analysis by budget and tax experts including the independent Parliamentary Budget Office has shown the tax burden will grow even with the 2024 tax cuts with most pain felt by middle-income earners.
Prime Minister Scott Morrison on Thursday said his government had cut taxes for Australians, but added the best way to cover the growing cost of services such as defence and health was by growing the economy.
“If you don’t have a strong economy, you can’t pay for the essentials that Australians rely on,” he said.
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