Personal income tax compliance in Australia is “inordinately complex”.

With an increase in the GST now off the table, the Turnbull government is considering abolishing work-related deductions altogether as one way of funding lower income tax rates.

The Australian Financial Review reports the move could save the government around $5 billion a year, which combined with a tightening of superannuation concessions would allow for modest cuts to personal and company income tax.

The Parliament’s economics committee is holding an inquiry into trading away personal and company tax deductions for lower tax rates and is due to report at the end of this month.

The AFR reports that former Australian Taxation Office official Richard Highfield last week told the committee that refund churn and fraud were big issues with the current system of claiming expenses.

“[In 2013] almost one million refunds were processed that had an individual value in excess of $6000,” he said.

“If you have a simpler tax system with fewer deductions, your withholdings can be more precise and your take-home pay can be increased substantially. That is worthy of consideration in terms of selling a more innovative and futuristic package.”

An overhaul of income tax deductions was floated by the Henry Tax review in 2009, which described personal income tax compliance in Australia as “inordinately complex”.

Ken Henry recommended introducing an automatic standard deduction, similar to the UK and Nordic countries, where use of tax agents for filing tax returns is much lower. As of 2005, 72 per cent of Australians were using a tax agent to submit tax returns — the second highest internationally behind Italy.

“An automatic standard deduction should be introduced to simplify people’s interactions with the tax system and facilitate much greater levels of pre-filling of tax returns,” the Henry Tax review said.

“Work-related expenses are deductible from taxable income, on the grounds that it is fair to assess a person’s disposable income taking account of costs they incur in earning that income.

“While they are the most commonly claimed deductions for employees, and claims have been growing substantially over recent years, they are also one of the key sources of complexity and compliance costs for individuals.”

Malcolm Turnbull has backed away from raising the GST.Source:News Corp Australia

TURNBULL TALKS DOWN GST

Malcolm Turnbull has told Coalition MPs the government’s modelling shows raising the GST rate does not provide the economic benefits that advocates have assumed.

The Prime Minister briefed a joint partyroom meeting in Canberra on Tuesday on the government’s tax reform work.

It was the responsibility of a “grown-up government” to examine tax and economic policy with great care.

“We have looked very painfully and carefully at the proposal to raise the GST and it does not proffer the economic benefits that many have assumed,” Mr Turnbull said.

The first hurdle for changing the GST was its economic feasibility.

The Prime Minister gave another example of the problems with tax reform, referring to states and territories switching from stamp duties to land taxes.

“You get 10 out of 10 from the economists for economic purity but it is 11 out of 10 for political difficulty,” he said.

MPs were told further modelling was being done, including more work on the GST.

The final decision on the Coalition’s tax policy would be unveiled in the May budget, Mr Turnbull said.

One MP told the meeting the government should not take the kneejerk step of ruling out a GST rise.

Mr Turnbull responded to the comment, saying the government was trying to grow the economy and revenues faster than government spending is growing.