The Australian government relies too much on personal income tax to pay for schools and hospitals, according to federal Treasurer Joe Hockey.
In an opinion piece for The Australian this morning, Hockey argues the government is relying on a “narrow base” for revenue and vital services are at risk if enough people slip from the top income tax brackets.
The comments come after Hockey flagged further tax reform at the National Small Business Summit in Sydney last month.
“We need a tax system that doesn’t hinder or limit our effort,” Hockey wrote in his opinion piece.
“We must seize the opportunity of the massive growth in Asia and harness the potential of the digital economy. Together we must continue to innovate, to build and to strive.
“This need for growth and development applies to traditional industries such as mining, where we enjoy a natural competitive advantage, and to the new industries of the future.”
Hockey made it clear that personal income tax is high on his agenda, arguing that the government’s revenue from the tax is “subject to unsustainable risk”.
This is because the top 10% of taxpayers pay nearly half of all income tax collected by Canberra.
“In developing a better tax system, we need to consider the sustainability of our heavy reliance on income tax, especially personal income tax,” Hockey wrote.
“We need to take into consideration the negative impact and disincentive of higher taxes. The problem is we have an over-reliance on personal income tax to support our revenue base. Our largest source of tax revenue is personal income tax. It raised about $185 billion last year… that is an over-reliance and dependence on a narrow base.”
Stuart Dall, partner at Pitcher Partners, told SmartCompany it’s not surprising that Hockey wants to reform personal income tax.
“It’s pretty widely acknowledged that personal taxes are viewed as being a relatively inefficient tax in that the base they relate to is quite mobile,” Dall says.
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“An issue that widely been recognised is bracket creep and that is an issue for the tax system. It all goes into the mix of what’s being discussed at the moment – the GST being a case in point.”
Dall says when it comes to personal income tax, another issue that will be playing on the government’s mind is whether the nation’s income tax rate is driving people offshore.
“There’s a broader issue around competition and wanting to attract and retain the best people in Australia so they don’t look at somewhere else and work in jurisdictions that might have lower tax rates,” he says.
“That has to be a concern for productivity moving forward as well.”