Simple tax change would close loopholes costing budget $2.5b
A ‘Buffett Rule’ in Australia would limit the incentive for very high income earners to use excessive tax deductions and boost government revenue by $2.5 billion per year.
The findings are outlined in a report from The Australia Institute: Closing the tax loopholes: A Buffett rule for Australia, which includes NATSEM modelling of a 35% average tax rate floor for those earning above $300,000 per annum.
“We have a situation where very high income earners are claiming massive deductions and paying zero tax. They’re taking the ATO, and the rest of us for mugs,” The Australia Institute Senior Economist, Matt Grudnoff said.
“Many on extremely high incomes are not just reducing their tax bill, they’re managing to pay nothing at all.
“Luckily, a billionaire has proposed a simple and effective solution, which NATSEM modelling shows if implemented in Australia would recoup $2.5 billion of revenue.”
The ‘Buffett Rule’ named after US billionaire Warren Buffett creates a tax rate floor, which allows legitimate deductions to be claimed, but also means deductions on earnings over a certain level can’t reduce high income earners’ average tax rate below a specified minimum.
“Modelling we commissioned from NATSEM looked at setting a 35% average tax rate as a floor for people earning over $300,000. This rate is below the average rate for progressive taxation up to that income.
“This isn’t a ‘new tax’, but rather a way to close the loopholes and fix the system so it works in the way it was intended.
“Startling data from the ATO that shows 75 very high income earners are, on average, spending over $850,000 on tax advisors, and paying zero income tax, depicts a cynical game of cat and mouse which is leaving average Australian taxpayers out of pocket.
“Sure, it’s rational for them to spend that much if you they can avoid more than that in tax. But from a society point of view, it represents a flow of money away from government services towards millionaires and their tax advisors.
“This would only affect very high income earners – and only those who are electing to engage in complicated avoidance schemes,” Mr Grudnoff said.
The Australia Institute’s paper is the first of a series of tax briefs, commissioned by GetUp!, which will outline fair and progressive policies by which the Government could raise revenue.