Australia is one of the most prosperous nations in the world. It has various high quality services that are not available in most underdeveloped nations. However, the Australian taxation system has been criticized for its many shortcomings. The major pitfall of the Australian taxation system is that it does not have neutrality in the treatment of high-income earners and small businesses. In addition, the taxation system tends to favor the baby boomer generation. The taxation system is also negatively geared towards investment properties. This necessitates the Australian government to undertake sweeping reforms in the taxation system to correct the problems inherent in the system.
The current Australian tax system has too many vested interest and rent seekers that make it not be neutral. The current system favors high income earners and small businesses. The current system also has unfair deductable expenses. Negative gearing of the Australian taxation system favors high income earners and small businesses. Negative gearing occurs when an investor buys a certain property but the income of the property is unable to meet interest on the money the investor borrowed to purchase the property. Negative gearing favors high income earners. This is due to the fact that high income earners have high interest rates and would therefore have a greater benefit of negative gearing.
The present taxation policies favor high income earners in relation to family trusts. It provides them with tax breaks for discretionary family trusts. Family trusts enable the high income earner to tying up their assets in a trust, which reduces their taxable income. Family trusts enable the high income earner to distribute their income to low income family members. The tax policies should be altered to ensure that there is a minimum amount of profit that a trust may earn before it is converted to a company.
The Australian tax system also favors small business owners. If an individual employer changes the tax status from employee to sole trader, partnership or company, the individual would be entitled to tax breaks that were previously not enjoyed.For example, an employee cannot deduct travel expenses to and from the workplace from the taxable income.However, a business owner can deduct all travel expenses from the taxable profit of the business.
The Australian tax policy has consistently favored the baby boomer generation in their entire lives. The tax policies has been changed on several occasions to favor throughout their lives. The baby boomer generation have not only received tax breaks, they have also received free education and benefits from a system that enabled them to exploit other taxpayers.
The current Australian tax policy enables people to reduce their taxable income based on the expenses they incurred to invest in various properties. In so doing, it treats low-income earners who cannot afford to buy property unfairly. It makes the low income earners continue wallowing in debt. The tax benefits give the high income earners who are already in the property market an advantage over other people who would like to purchase a home. Negative gearing was aimed at encouraging people to build new houses. However, it has been unable to achieve its purpose. This has made it place a large drain on the taxation system.
The tax discount on 50% capital gain for investments that are more than one year has increased the bias of Australian tax system towards the high income earners. This tax benefit has led to a significant reduction in government revenue. In addition, it has not only made young low income tax payers be unable to purchases homes but has also ensured that their taxes benefit the high income earners who collect their monthly rent.
It is unfair for the current Australian tax system to offer deductions on loss making properties. It reduces government revenue. In addition, it enables investors who receive less income from their property than they pay for the amount borrowed to purchase the property to reduce their taxable income. This system is unfair to people who cannot afford to purchase their own homes as they do not receive deductions on their taxable income.
The tax system should have a neutral treatment of rental and owner occupied homes. The system may achieve neutrality by providing incentives for investors to construct new houses. They may then rent the houses to low income taxpayers at a lower price. This strategy would help in alleviating the Australian housing shortage. The Australian tax system may also provide rent assistance to low income earners. It should also abolish the stamp duty taxes.
The baby boomer generation accounts for a significant proportion of the population in developed countries. However, the baby boomers are approaching the retirement age. The Australian government implemented a compulsory superannuation scheme in 1992 to tackle to issue of the ageing workforce. However, the government still needs to implement other measures to tackle the reduced workforce. Reduction in the workforce would reduce income tax revenue and increase health care payments for the old. This would place a strain on the younger tax payers as they would have to meet the tax burden due to the retirement of the baby boomer generation. Currently, the Australian tax system does not generate enough revenue to meet the public demand for various services. The demand would increase in the future as the population that needs the public services increases.
The government should ensure that it undertakes measures that would help in increasing the tax revenue. However, the measures should be non-discriminatory. The government may increase the tax revenue by increasing the rate of goods and services tax. This would be applicable to all taxpayers regardless of their income level. The current Australian goods and services tax is significantly lower than the level of other countries. Therefore, it would be a good source of raising additional tax revenue. Increase in tax revenue would help in maintaining the high quality of public services. The government may also increase the tax revenue by taxing the family trust of high income earners. The government may use the tax revenues to improve the welfare of the low middle class earners. However, increasing goods and services tax has become a political issue with different parties on either side of the debate.
In conclusion, the Australian tax system has been criticized due to its pitfalls. It favors high income earners and small business owners. It makes them be eligible to various tax breaks. The tax breaks reduce tax revenue. The ageing of the baby boomer population would reduce the active workforce in the economy. This necessitates the government to formulate measures that would help in improving the tax revenue.
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