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Ex-Australian Prime Minister Argues for Lowering Top Tax Bracket

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Paul Keating stated that the government also needs to control spending, focusing on major expenses like the NDIS.

Former Labor Prime Minister Paul Keating said the top marginal personal tax rate in Australia of 45 percent is too high, describing anything over 39 percent as “confiscatory.”

“There’s an issue that all societies should have, of how much [of] a person’s conscientious efforts and wealth should be delivered to the state,” the former treasurer told the Australian Financial Review.

“Once you start getting the top rate over, in my opinion, 39 [percent], it becomes confiscatory and when they become confiscatory you just lose all that impetus to make a dollar and do clever things.”

He also wants to see the indexation of the personal income tax scales to ensure the incentive remains and to “keep governments honest.”

“Fiscal drag is a pernicious tool,” he said.

Outgoing Tax Commissioner Agrees

That view is supported by outgoing Tax Commissioner Chris Jordan, who told the National Press Club this week that New Zealand took the “drastic” step, more than a decade ago, of cutting the top personal rate to 33 percent (raised to 39 percent by Jacinda Ardern) and abolishing work-related deductions.

That contrasts with Australia, he said.

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“With the personal rates we have, people do focus on what they can do to split income and try to get taxed at the corporate rate [25 percent for small companies] rather than individual rates and that has required us to really focus a lot on what’s appropriate,” Mr. Jordan said.

Mr. Keating claimed that, unlike the GST later introduced by John Howard and Peter Costello, his major tax reforms changed behaviour in ways that promoted economic growth.

In 1985, as treasurer, he convinced the Labor government to legislate capital gains tax, fringe benefits tax, and dividend imputations that ended the double taxation of company profits. He also cut the company tax rate from 49 to 39 percent, and cut the top personal income tax rate from 60 to 47 percent.

In 2006, the highest income tax bracket was tweaked to 45 percent.

Saxon Rose, special counsel of taxation at Hopgood Ganim, said Australia was “completely out of step” with the rest of the world, pointing to its heavy reliance on personal taxes to bolster government revenue.

He cited the Tax Institute and Australian Tax Research Foundation, which advocates for a shift away from taxing individuals, and instead, towards other areas.

“The Henry (2009) and Thodey (2020) tax reviews made the assessments that consumption is ‘one of the most efficient and sustainable tax bases available to governments’ and that ’empirical evidence indicates that a broad-based tax on consumption is one of the least damaging taxes to economic growth,” he told The Epoch Times.

“In addition to encouraging productivity and workforce participation by shifting reliance from income taxes, improvements to the GST can alleviate reliance on even more volatile, distortionary, and inefficient revenue streams that are imposed at the state level, such as stamp duties and insurance levies.”

Discipline Needed on Government Spending: Keating

He is also in favour of a federal resources rent tax amid higher commodity prices being paid to iron ore exporters such as BHP, Rio Tinto, and Fortescue.

“We could do more on the revenue side other than personal income tax,” he said. “Of course, today nobody’s going to reduce the top rate down to 39.”

He stressed any debate about tax needed to be accompanied by more of the sort of spending discipline delivered by the Hawke-Keating Labor government in the 1980s.

“The prioritisation of discipline in government spending is not there today like there was then. So it means everything gets trowelled on. And when it gets trowelled on, where’s the revenue?”

He cites the National Disability Insurance Scheme (NDIS)—which the government actuary has warned could cost $125 billion a year within a decade—calling it “an unsustainable tearaway.”

“So, the pain’s got to come somewhere,” he warned.

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