A former leader of the finance department has cautioned that Australia’s current taxes are not sufficient to cover government obligations, such as aged care and defense.
The Australia Institute’s revenue summit on Friday will feature Michael Keating, who served as the secretary of the Department of Finance from 1986 to 1991. Keating will propose a review of revenue and advocate for various methods to address the tax gap, such as congestion charging, expanding and increasing the goods and services tax, and modifying the stage-three income tax cuts.
In October, the Australia Institute presented a model demonstrating that income tax cuts could be altered in order to potentially save the budget up to $130 billion, while still providing greater tax cuts to 80% of individuals earning income.
According to the intergenerational report, there will be a budget deficit of less than 1% until the mid-2030s. However, Keating believes there are valid concerns about whether the current level of service provision is sufficient.
In a preliminary version of his address, Keating mentions “insufficiently funded” obligations in light of the aged care royal commission, anticipated expenses for hospitals and Medicare, the ultimate goal of raising jobseeker payments, the expected necessity to boost defense spending for Aukus, and the urgency to invest more in lowering greenhouse gas emissions.
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According to the Grattan Institute, the projected budget deficit in ten years is approximately 3% of the GDP. However, the speaker shares their personal evaluation that the actual number may be closer to 4% if the government meets public demands for adequate services and financial assistance.
Reducing expenses is not a viable solution as the majority of the budget is allocated to “entitlement programs” and previous budget cuts in 2014 resulted in strong backlash.
Keating is urging for a comprehensive and impartial evaluation of the necessary funding for sufficient service provision, in order to determine an authoritative estimation of the required amount. This should be done prior to discussing methods of generating revenue.
According to Keating, he supports taxes that enhance effectiveness, such as implementing a carbon tax, charging for congestion, and replacing stamp duty with a land tax.
He suggests implementing a “resource rent tax” to ensure that the community benefits from the large profits made by mining companies that are a result of luck rather than hard work or innovation. This idea is similar to one proposed by Nobel Prize-winning economist Joseph Stiglitz.
The conference will also feature a speech from Andrew Leigh, the assistant minister for treasury, where he will provide an update on the actions taken by Labor to combat deceptive tactics and unethical conduct by multinational companies. This includes being one of the first countries to pass legislation for a worldwide minimum corporate tax rate of 15%.
Leigh states in his address that the newly implemented global minimum tax rate will serve to discourage a “race to the bottom” in terms of corporate tax rates.
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According to the speaker, this measure aims to decrease the difference in tax rates between Australia and countries with lower taxes. It also seeks to safeguard Australia’s corporate tax revenue by discouraging companies from moving their profits overseas, while making Australia a more appealing destination for investment and stimulating economic growth.
Our adoption of the worldwide minimum corporate tax will enable us to impose an additional tax on major international companies conducting business in Australia, if their income in other countries is taxed at a rate lower than 15%.
“Furthermore, the domestic minimum tax will grant us the ability to impose additional taxes on the small amount of Australian income earned by large multinational corporations.”
Leigh also highlights the implementation of new regulations on “thin capitalisation”, projected to generate $720 million in revenue from 2021 to 2025. The government also reaffirms its commitment to country-by-country tax reporting, but is still deliberating on the extent of disaggregated reporting.
Leigh stated to Guardian Australia that he desires the participation of “as many countries as possible,” while also ensuring that the important information sharing necessary for the Australian Tax Office’s operations remains intact.
Leigh stated that starting in July 2024, companies in Australia will be required to report on their operations in a greater number of countries compared to any other country. This will also include a more comprehensive breakdown of the specific countries, surpassing the measures of the European Union.
According to Leigh, the Labor party has completed the financial analysis for all of their proposals and has identified ways to save money for cost of living initiatives, all while achieving a surplus for the first time in 15 years.
Source: theguardian.com
