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