Tax by Stealth

Tax by stealth – the shameful growth of the Australian tax system

The Australian tax system has changed significantly since the end of the 19th century. The six colonies raised the bulk of their tax revenue from selective customs and excise duties. The original design of the tax systems of the six colonies was driven largely by the feasibility of administration, rather than principles of equity or efficiency. Customs duties were easy to collect from the limited number of wharves where goods entered the colonies. Although highly regressive, customs and excise duties levied on necessities ensured a relatively secure source of revenue. They also acted as trade barriers between the colonies. One of the significant results of federation in 1901 was the removal of all duties on goods traded between Australian states.

Since federation, developments in tax policy is classified into two periods. Up until the mid-1970s, the primary driver of significant changes to the tax system was expanding the revenue base to fund expenditure programmes. Since then, the revenue requirement has been relatively stable. However, there has been a failure to reform the tax system to improve equity and efficiency. There is a need to reduce tax system complexity that the government merely pays lip service to.

“Income tax, if I may be pardoned for saying so, is a tax on income.” Lord Macnaughten in London Country Council v AG [1901] 4 TC 293, page 293. However, it is not that simple. Here is the infection of tax, blow by blow:

Date Details
1805 First import duties and charges levied in Australia to build a gaol and orphanage in Sydney
1819 UK legislation provides retrospectively for the Governor to levy existing duties and to levy equivalent excise on production of spirits within the colony up to 10 shillings a gallon
1823 With the end of military government UK government gives the Governor (advised by Council) the power to tax, constrained by requirement of local purposes only
1825 Proclamation dated 4 February 1825 levied duties on spirits and tobacco and ad valorem tariff of 5% on foreign goods
1851 NSW first introduces death duties. NSW levies probate and administration fees on the value of personal estate
1852-3 Introduction of gold licence fee in NSW
1877 Land tax first imposed (in Victoria) to break up large holdings
1880 First Australian income tax introduced with Tasmania’s withholding tax on dividends, annuities and rents. By 1907 all States had introduced income tax
1884 First Australian general income tax and land tax based on unimproved value introduced in South Australia
1894 Tasmania introduces general income tax
1895 Victoria introduces general income tax
1901 Commonwealth of Australia established with Constitution giving the Commonwealth concurrent power with the states to levy taxes (section 51 (ii)) and exclusive power to impose duties of customs and excise (section 90). Uniform national tariff introduced (section 88)
Customs administration for duties on imports and exports and related matters established
Excise administration established for duties on manufactured goods
1902 Uniform rates of customs duties set by Commonwealth on various goods
sets rates of excise duties imposed on beer, spirits, starch, sugar and tobacco
Queensland introduces general income tax
1903 WA introduces death duties on real and personal estates
1910 Commonwealth introduces land tax on unimproved values. Land Tax Office (predecessor of the Australian Taxation Office) established in November within the Dept of the Treasury to administer the tax
Commonwealth taxes private banknotes at prohibitive rates
Commonwealth provides for financial assistance to the states under section 96 of the Constitution (grants power)
1914 Commonwealth imposes death duties (national estate and succession duty)
1915 Commonwealth introduces personal income tax and tax on undistributed company profits (dividends). Name of Land Tax Office (est. 1910) changed to Taxation Office to reflect wider responsibilities
1916 Commonwealth entertainment tax introduced
1918 1/2d (halfpenny) war tax levied on postage stamps. The legislation was repealed in 1920 but the increase in postage remained
1930 Commonwealth introduces 2.5% sales tax in August to offset fall in customs revenues
1936 Unified Commonwealth and state income tax return introduced following recommendation of Fergusson Royal Commission (1932-34).
1939 Gold tax introduced
1941 War tax introduced
Pay-roll tax introduced to pay for child endowment
Gift duty introduced on disposition of property1/2d (halfpenny) war tax levied on postage stamps. The legislation was repealed in 1949 but the increase in postage remained
1942 System of uniform tax introduced by which grants to the states from the Commonwealth replaced state revenue from income tax and state income taxes no longer collected
1944 Pay-as-you-earn (PAYE) tax system of periodic tax payments through the employer introduced for wage and salary earners by Commonwealth, with a provisional tax system introduced for non-wages and salary income
1950 Income Tax Assessment Act 1936 retitled as Income Tax and Social Services Contribution Assessment Act 1936
1952 Commonwealth land tax abolished in favour of states
1953 Entertainment tax abolished
1965  Income Tax and Social Services Contribution Assessment Act 1936  retitled as Income Tax Assessment Act 1936
1968 Name of Taxation Office changed to Commonwealth Taxation Office
1971 Commonwealth passes payroll tax to states after they request access to income tax
1972 Name of Commonwealth Taxation Office changed to Australian Taxation Office (ATO)
1975 Commonwealth Taxation Review Committee. Full Report (Asprey Report)  recommends a broad based consumption tax etc
1976 Queensland abolishes death and gift (estate) duties. Act takes effect from 1st January 1977. Other States follow.
Through a series of amendments from 1976-1980 to the Stamp Duties Act 1920, NSW abolishes death duties. The first amendment is the Stamp Duties (Amendment) Act 1975, no. 75 and the last is the Stamp Duties (Further Amendment) Act 1980, no. 161. Abolition takes effect on or after 31/12/1981.
Victoria abolishes death duties
1978 Commonwealth abolishes death and gift duties to take effect from 1 July 1979
Tasmania abolishes death duties. Act is gradually applied during 1979 and 1980
Western Australia abolishes death duties
1979 South Australia abolishes death and gift duties (to take effect from 1st January 1980)
1981 Personal income tax indexation abolished
1984 Medicare levy introduced 1st February 1984
1986 Capital gains tax introduced
Fringe benefits tax introduced
1987 Commonwealth introduces Resources Rent Tax (RRT) on offshore ‘greenfields’ petroleum projects
1999-2000 A 10% Goods and Services Tax was introduced gradually replacing various taxes such as sales tax. About 30 related Acts also passed (nos. 56-86 of 1999). Most Acts commenced on 1 July 2000
2000-01 The New Tax System (TNTS) income tax cuts:·         The lowest marginal tax rate reduced from 20% to 17%·         The 43% and 34% tax rates reduced to 30%

·         Increase in the tax-free threshold from $5,400 to $6 000

·         The thresholds at which the 42% rate and 47% rates apply increased to $50 000 and $60 000 respectively

·         The new 30% rate applies to a much wider range of taxable income, from $20 001 to $50 000

Embedded wholesale sales tax and excises on purchases by a State government are reduced

First Home Owners Grant introduced

2001-02 New Simplified Tax System (STS) regime for small and medium-sized enterprises (SMEs) introducedFirst child tax offset (‘baby bonus’)Financial institutions duty abolished in all States – Intergovernmental Agreement

Stamp duties on quoted marketable securities abolished in all States

Company tax rate is further reduced from 34% to 30%

2002-03 ATO stripped of policy and legislation branch – transferred to TreasuryThe simplified imputation system:·         Franking account now operates on a tax-paid basis

·         Franking deficit Tax (FDT) and deficit deferral tax incorporated into the one tax (FDT)

Responsibility for the development of tax legislation and regulations transferred from ATO to the Department of the Treasury

2003-04 Inspector-General of Taxation established.First round of the Business Tax Review legislationBusiness Tax Review(Assessment) Act 2003 and the Business Tax Review (Taxing) Act 2003 –passed, and focuses on reforming pay-roll and land tax arrangements.

Second round of legislation passed in November 2003, giving effect to the stamp duty, conveyance duty and debits tax recommendations of the Review

Taxation Administration Act 2003 passed

2004-05 Pre-filing electronic tax returns implementedThe number of State taxes reduced by abolishing stamp duty on workers’ compensation insuranceTax cuts increase the levels of income at which people start to pay the 42% ($58,001) and 47% (70,001) tax rates
2005-06 The taxes on cheques, bills of exchange or promissory notes abolished in all StatesPersonal income taxes:·         17% bracket is reduced to 15% and

·         Thresholds for the 42% and 47% brackets are increased

3% tariff on certain imported business inputs removed

Debits tax abolished in all States – Intergovernmental Agreement

2006-07 New tax cuts include:·         The marginal tax rate of 15% threshold from $6,001 to $25,000 and·         The increase of 30% threshold from $58,000 to $75,000
2007-08 STS regime from 2001 replaced by Small Business Entity (SBE) regimePlus personal tax relief worth $31.5B over 4 yearsChild Care Tax Rebate provided as a direct payment

Tax on superannuation benefits taken by those aged 60 or more abolished

2008-09 Australian Government’s Review of Australia’s Future Tax System announcedThe Government is “ease the burden” on working families by providing $46.7B of personal income tax cuts over 4 years, including:·         Increase of 30% threshold from $30,001 to $34,001 and

·         Increase of low income tax offset from $750 to $1,200

50% Education Tax Refund helps parents invest in their children’s education

Child Care Tax Rebate increased from 30% to 50% and paid quarterly at a cost of $1.6B

2009-10 50% Small Business Tax Break for eligible assets introducedInterest withholding tax on government securities removed
2010-11 Australia’s Future Tax System Review publishedTobacco excise increased by 25%Australia’s Future Tax System: Report to the Treasurer, dubbed “Henry Tax Review”
2011-12 R&D tax incentive reform doubles the rate of assistance for small and medium sized companiesThe statutory formula method for valuing car fringe benefits altered to a single rate of 20%Paid Parental Leave scheme introduced

Taxation of fuels towards energy content based taxation reformed

2012-13 Resource Super Profits Tax (RSPT) introduced by Labor that constitutes a 40% tax on the “super” profits made from “the exploitation of Australia’s non-renewable resources”Carbon tax is introducedIncrease of the tax-free threshold to $18,201

Duty free allowance for cigarettes reduced

Withholding tax rate on managed investment trusts now 15%

2013-14 Part IVA Income Tax Assessment Act 1936 reforms (section 177C) and a rewrite of Australia’s transfer pricing lawsSubdivisions 815-B to 815-D Income Tax Assessment 1997 establishedIncrease Superannuation Guarantee rate from 9% to 9.25%

Superannuation Guarantee maximum age limit abolished

2014-15 Family Tax Benefit Part B (FTB-B) tightenedLow income single parents assisted with new allowance of $750 per annum for each child aged 6 to 12Indexation of eligibility thresholds for Family Tax Benefit temporarily paused

The carbon tax removed by Liberals

Minerals Resource Rent Tax Repeal and Other Measures Act 2014 passed

Increase Superannuation Guarantee rate from 9.25% to 9.5%

Indexing tobacco excise to inflation

2015-16 Small business work‑related portable electronic devices are FBT freeMultinational Anti-Avoidance Law – stops multinationals artificially moving profits to lower tax jurisdiction such as Ireland

 

1 Comment

  1. Bernard Gerbes says:

    Thanks Dr Brett, this is most interesting and a useful reference. Appreciate your time and effort with this.

Leave a Reply