If someone told me they were going to forego some money cutting tax and asked me for some tips these are some tips I would have given them.
- Cut the bottom marginal rate or lift the threshold at which the second marginal rate cuts in.
- If you’re cutting tax to the battlers consider providing tax cuts via income tax credits – that way you can claw back the benefits to those higher up the scale.
- If you want to cut taxes to those higher up, do it by lifting thresholds rather than lowering rates.
- The largest efficiency gain you can make is not a ‘big ticket’ item. It is simplifying people’s tax. Get the ATO to ‘pre-populate’ citizens’ tax returns with all the information it collects – on PAYG tax, interest and dividends received – and then get them to make any additional amendments they want to make. And do it all on line.
The budget does all those things. Lateral Economics argued the first three propositions here and I argued the case for copying other countries and simplifying tax returns here. Andrew Leigh has also advocated this for some time. I’ve not checked the details yet, but having set this up it makes sense to spend some money on it by providing taxpayers with increasinly large automatic deductions. That way we don’t have to go running round keeping all our receipts. We all get some credit for business deductions each year and paperwork is cut further.
Anyway it’s nice to see good politics and good policy can sometimes make for such a good fit.