Australian Tax And Transfer System

There is Federal Government in Australia. Hence, all matters related to taxes and transfers are handled by different levels of the government. All the national, state and local levels of the government are linked with each other and considered as a single tax transfer system that has several components. An Australian citizen needs to contact with the Australian tax-transfer system, the state tax-transfer system and also the one at the local level to get his work done. Also, any business in Australia needs to interact with the government at multiple levels of the different states and local governments, along with the national tax-transfer system.

It has been seen that the national Australian tax transfer system works with four elements of tax- personal income tax, taxes levied on goods and services, transfers like cash payments and superannuation. Whereas on the state level we can see that the tax transfer system is more restricted and contains property and indirect taxes. The tax transfer system has its effect on both businesses and individuals residing in Australia. There are a number of taxes present in Australia presently at the national, state and local levels of the government. The tax-transfer system of Australia is present at all levels of the government and the entire structure of the tax system is too complex and complicated at delivering multiple objectives.

There are quite a few multiple policy objects t

• Introducing transformations in personal lives, businesses and commerce with the help of advance technology like communications and electronics.
• Urban amenity and affordable houses for people.
• Better understanding between the ecosystems and humans both locally and globally.
• Reduction in certain tax bases and increase in the cost of health and dependency.

Multiple Policy Tax and Transfer System of Australia 

Generally Australians choices are very independent who likes to make choices about investing in education, how much money to be spend on what goods and services and how much money needs to be saved and to be invested. Now the Australian tax transfer system would have an impact on these choices through many channels. If we see the Federal system of government then we can notice that transfers and taxes are managed by several levels of government. All the State and local government systems are inter-linked and can be considered as one tax-transfer system with multiple components. Individuals interact with the tax transfer systems which reside with the State and local government. For individuals it is still manageable but for company and persons doing business it is a bit difficult. Since a company is doing business across several States and they tend to interact with multiple state tax systems and even many local governments in addition the Australian Government system. This shows that there is so much conflict and confusion between the State, Local and Central Government regarding the tax transfer system All the tax laws are interlinked and so when a company is dealing in transactions with several States then many a times there is a conflict between the laws. In such cases Court needs to intervene and solve the case. (Treasurygovau, 2016)

The role of Australian Government is much greater than the State and local government. Many a times they overlap each other since taxes and transfers handled by them differ. But if one can see the tax and transfer laws in Canada, both the Federal Government and States deals with same or similar taxes and transfers. But unfortunately same is not followed in Australia, due to which so many complications and confusions have been created. (Anueduau, 2016)

Now we will know how the Australian government handles taxes. Australian Government deals with four elements of the tax transfer system which are Superannuation, personal income tax, taxes on goods and services and transfers. These taxes are mainly dealt by individuals and they also interact with company tax as well. But when it comes on the State side then individuals generally deals with more restricted transfer system and a wide range of indirect and property taxes. If an individual is working in a company then company will also deduct tax if the income is more than the tax limit. Most of the tax which is collected by the government is paid by companies. Companies are also liable to pay fringe benefit tax and superannuation guarantee payments for their employees. Apart from this company also deals with the tax transfer system for their own right like payment of GST tax, payroll tax, and various other taxes which are levied on the company. Hence by this it can be concluded that companies which are operating in more than one State needs to deal with multiple Australian and State government tax systems. (Victoriaacnz, 2016)

Current Australian Tax system is Overburdened 

As we have seen in the above paragraph the current tax system is very complicated and over-burdened. Taxes and transfers followed by both the Federal Government are not same or similar. The big problem lies is with the Central Government, so many types of taxes are involved that it becomes difficult for the company to do any business over Australia. (Aifsgovau, 2016) If any outside company wants to do any business in Australia then it would get confused with the tax system followed. Instead of doing business in Australia they would rather start a new business in any other country where tax system is much better placed. Australia’s tax level is relatively lower than most of the OECD countries. The tax level is below than the OECD average and even below than the countries like Canada and New Zealand. Even in the case of transfer system, Australia has a mixed transfer system of private and public support for retirement. Apart from this it also has the system of both voluntary and compulsory superannuation which are generally funded by employees, employers and also by the persons who are self-employed. (Bettertaxgovau, 2016)

If we see the retirement income process of Australia, then it is also a very complicated and a lengthy process. It has a three pillar retirement income system where the first pillar is a tested age pension which is treated as a universal minimum income safety net. While the second pillar includes compulsory contributory scheme which is only based on employee earnings. And lastly the third pillar includes tax advantaged voluntary saving which is generally derived through superannuation funds. (Sagovau, 2016) 

Future of Australian Tax System to Overcome the Current Tax System’s Shortcomings 

As we have seen above that the current tax and transfer system is very complex and complicated, it has become necessary to change the entire tax and transfer system of Australia. To have an ideal tax system it needs to have some features which are discussed below: (Taxreview.treasury.gov.au, 2016)

• Taxes should be broadly based which should have few concessions and exemptions:

1. Complexity generally endangers both compliance and administrative costs.
2. Concessions also encourage rent seeking which should be lobbied for any further carve outs from the base created by the government.
3. If the base itself is very narrow then it would create small and heavily affected constituencies.(Conversation, 2016)
4. Narrow bases also mean that the tax rates are higher than expected and so efficiency costs increase more than proportionately with the rate. But if broad base is there then it definitely minimize these costs.
5. Complexity even breeds complexity since it tends to avoid opportunities prompt anti-avoidance provisions.

• Direct taxes should be used which is much preferred than the indirect tax system. The reason behind it is that these indirect taxes distorts resource allocation and even harms productivity.(Pc.gov.au, 2016)
• Even the focus of direct taxes would be on the immobile factors of production. While indirect taxes focus was mainly on the mobile factors that is the reason so many complexities and complications were there. Immobile factors of production are like labour income taxed very heavily, economic rents from land and even capital incomes taxed heavily.

At present there is dire need for the Australian government to take charge of the tax and transfer system and rationalise it in such a manner that it is enabled to overcome all the present shortcomings. Some of the factors to be taken into consideration by the Australian government are as follows:- (Taxreview.treasury.gov.au, 2016)

• There are way too many taxes at present in Australia that is just overburdening the system. The tax-transfer system is beginning to fall apart due to this overburdening of multiple policy goals. Taxes should be narrowed down to four bases- personal income, private consumption, business income and economic rents derived from land other natural resources. (Alrc.gov.au, 2016)
• Attention is to be paid to the long-term growth of Australia that determines the living standards of its citizens. More practical and neutral taxes are to be introduced, better work incentives to be introduced and introduction of expenditure tax at business level.
• Personal income tax being the largest source of income for the country it is to be made more simplified, transparent and equitable in nature. All allowances, transfer payments and pensions are to be made free of taxes.
• The transfer system of Australia is to be work supportive, focused on alleviation of poverty, fair and adequate, and sustainable in nature. There should be good coordination between the tax and transfer systems of Australia.
• Land tax is to be broad based to make it efficient. Rent-based taxes are more encouraging for the private sector. Rate scale of land taxes are to be based on value per square metre of land.
• Tax on superannuation needs to be abolished. Accommodation services and care facilities for the aged are to be separated.
• Transfer taxes on property are to be replaced by annual land tax. Housing is to be made affordable for all the citizens of Australia.
• The administration and policy making taxation system is to be responsive, understandable and more open to the tax payers.
• State taxes that are inefficient in nature are to be removed and replaced with cash flow taxes of low rates.

Now is the time to bring about changes in the tax and transfer architecture of Australia that is deeply overburdened with all the multiple demands and policy goals. There is dire need to rationalise the tax-transfer system of Australia at present day. (Choicecomau, 2016)

Conclusion

Hence it can be concluded that the entire tax system of Australian needs to be changed to have a transparency in the tax and transfer system. It should follow the system which is followed in Canada. Both Central and State government taxes should be similar to avoid any complexity.

References

Aifsgovau. 2016. Aifsgovau. [Online]. [26 August 2016]. Available from: https://aifs.gov.au/sites/default/files/publication-documents/changing_the_australia_taxation_system_towards_a_family_income_guarantee_submission_to_the_exonomic_planning_advisory_council.pdf

Alrc.gov.au. (2016). Complexity of the tax transfer system | ALRC. [online] Available at: https://www.alrc.gov.au/publications/7-income-tax/complexity-tax-transfer-system [Accessed 26 August 2016].

Anueduau. 2016. Anueduau. [Online]. [26 August 2016]. Available from: https://taxpolicy.crawford.anu.edu.au/files/uploads/taxstudies_crawford_anu_edu_au/2015-05/ttpi_chapter3.pdf

Bettertaxgovau. 2016. Bettertaxgovau. [Online]. [26 August 2016]. Available from: https://bettertax.gov.au/files/2015/06/Scott_Bernie.pdf

Choicecomau. 2016. Choicecomau. [Online]. [26 August 2016]. Available from: https://www.choice.com.au/money/budget/federal-budget/articles/most-australians-worried-about-2015-federal-budget-210415

Pc.gov.au. (2016). Tax and Transfer Incidence in Australia - Productivity Commission. [online] Available at: https://www.pc.gov.au/research/completed/tax-and-transfer-incidence [Accessed 26 August 2016].

Sagovau. 2016. Sagovau. [Online]. [26 August 2016]. Available from: https://assets.yoursay.sa.gov.au/production/2015/06/18/00_03_49_35_Name_withheld.pdf

Taxreview.treasury.gov.au. (2016). Architecture of Australia's tax and transfer system. [online] Available at: https://taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_2-01.htm [Accessed 26 August 2016].

Taxreview.treasury.gov.au. (2016). Part 1: Overview - Chapter 1: The need for reform - Australia's Future Tax System: Final Report. [online] Available at: https://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_1.htm [Accessed 26 August 2016].

The Conversation. (2016). Ideas for Australia: Five ideas to help fix Australia's tax system. [online] Available at: https://theconversation.com/ideas-for-australia-five-ideas-to-help-fix-australias-tax-system-56272 [Accessed 26 August 2016].

Treasurygovau. 2016. Treasurygovau. [Online]. [26 August 2016]. Available from: https://www.taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_2-01.htm

Victoriaacnz. 2016. Victoriaacnz. [Online]. [26 August 2016]. Available from: https://www.victoria.ac.nz/sacl/centres-and-institutes/cagtr/pdf/smith.pdf