(Australian Associated Press)
As the Morrison government mulls over possible tax changes to help lift the economy out of its first recession in nearly 30 years, tax experts have called for a change in the way savings are taxed.
In a new report, the Tax and Transfer Policy Institute at the Australian National University urges the government to consider a dual tax system where savings are taxed at a low rate and separate from taxes on labour income.
“As review after review has shown, Australia’s current approach to taxing savings is a mess at best and a serious driver of intergenerational inequality at worst,” the institute’s Professor Robert Breunig says.
He said some savings tax arrangements are progressive, taxing higher incomes more heavily, but some are are regressive, favouring the old while being punitive for the young.
“Our current tax arrangements are inefficient, inequitable and distort the flow of savings across our society and economy,” he said.
“The system is complex and encourages Australians to engage in costly tax planning schemes.”
The report says most types of savings should be taxed at a low rate and independent of the tax rate on income from other sources.
“The taxation of savings is politically contentious with strong lobby groups defending particular savings arrangements, whether that is the untouchable nature of owner-occupied housing, dividend imputation or superannuation concessions,” Prof Breunig said.
The report calls for the replacement of dividend imputation with a flat tax rate on dividends, removing stamp duties, which significantly distort decisions about when to move house, and including owner-occupied housing in means tests for pensions.
“This might seem radical. But in reality the reforms are reasonable and would bring us closer to the optimal tax system Australians deserve and this nation needs,” Prof Breuing said.