So recently I had a chance to read through a publication by Senator Matthew Canavan (LNP, Queensland) entitled Balancing taxing and parenting – submission to Re:think – Australian Government Tax Discussion Paper from June this year.  In this document, Senator Canavan discussed the imbalance produced by having a tax system focused almost exclusively on the individual, regardless of any spousal income, whilst our family payment arrangements are based on household income.

There has been several times over the last decade or so, where the idea of “income splitting” has been raised.  However, I haven’t before seen such a comprehensive analysis of the benefits of household-based taxation as in this paper.  I recommend you get access to a copy and read it yourselves.

This is also useful, as considerable discussion is occurring over reforming our whole taxation system, which hasn’t seen major adjustments for many decades.  There are many varied opinions on how to improve our current system.  Balance is required to reduce the burden on individuals and families, but to also ensure the Government continues to receive the revenue it requires to provide the services we need.

When the Goods and Services Tax (GST) was introduced in 2000 by the Howard Government, a lot of negotiations took place to ensure passage through the Senate, and the Democrats, holding the balance of power, demanded several changes to garner their support.  This involved exempting certain products and services from the tax, and seemed like a good compromise.

The beauty of the GST system is that it removed the ability for people with “creative” accountants to avoid paying the tax.  Applying legitimate (or otherwise) adjustments to one’s taxable income, whilst reducing the amount of income tax payable, had no impact on paying GST.

However, having some goods and services attracting a tax, and others not, made it more complex for businesses who were collecting the GST for the Government.  Completing your Business Activity statement (BAS) became quite a headache, particularly for small businesses.

Whilst I don’t have all the details, nor the resources available to investigate further, I would suggest that having the GST applied to every single product or service would make record keeping and other paperwork simpler, as the tax would apply across the board.

I would also suggest that raising the rate, probably to 15% from the current 10%, could have great benefits for the whole system.  Increased GST (through a higher rate, and across the board application) would allow the Government to reduce the income tax collected.  Whilst any reduction to income tax rates provides a larger benefit to higher income earners than lower income (by its very nature), more support programs could be implemented for low income earners, to assist with the increased cost of goods and services, especially those that previously had no tax applied.

Reducing the complexity of the income tax system would also make tax returns less complicated, and maybe even eventually removing the need for most people to even complete annual tax returns.  This would reduce Government costs, as well as reducing stress that rolls on every July.

The two certainties in life are death and taxes.  We can’t get rid of taxation, but we can discuss all the options to make it fairer, easier and less burdonsome.

Food for thought.