The document discusses the essential role of taxation in creating a prosperous society, highlighting its functions in providing public goods and redistributing wealth. It examines historical and contemporary perspectives on tax principles, including efficiency, fairness, and resilience, while analyzing various tax structures and trends in Australia. The document emphasizes the need for a stable and adaptive tax system to meet changing economic and social needs.

1. WHAT MAKES A SUCCESSFUL
TAX STATE?
Prosper Society, 2 September 2015
Miranda Stewart
Professor and Director, Tax and Transfer
Policy Institute, The ANU

2. The long view: what is tax for?
“defraying the necessary expence of
any great and civilized state … this
expence must, the greater part of it,
be defrayed by taxes of one kind or
another; the people contributing a
part of their own private revenue in
order to make up a public revenue to
the sovereign or commonwealth.”
2
“That sure, steady, and permanent revenue which can alone
give security and dignity to government … for a great nation”

3. 3
Of course, government paid for by taxes
must be legitimate
The Eureka Stockade Rebellion, Australia, 1854

4. 4
“That it is the inalienable
right of every citizen to
have a voice in making the
laws he is called upon to
obey
– that taxation without
Representation is tyranny.”
And representative…

5. What is tax for?
• Public goods (benefit of government)
Some goods ‘though they may be in the highest degree
advantageous to a great society are, however, of such a
nature that the profit could never repay the expenses to any
individual or small number of individuals and which it
therefore cannot be expected that any individual or small
number of individuals should erect.’ (A. Smith, 1776)
5
 Redistribution (inequality)
‘Taxation can become a regulating factor in the distribution of
national income and wealth, generally by modifying the
distribution brought about by free competition. … this second,
regulatory purpose to interference with the uses of individual
incomes and wealth … is a ‘social welfare’ concept beside the
‘purely financial’ one’(A. Wagner, 1893)

6. 20thc tax: The View from 1915
6
HOUSE OF REPRESENTATIVES
INCOME TAX ASSESSMENT BILL
Second Reading
SPEECH
Wednesday, 18 August 1915
BY AUTHORITY OF THE HOUSE OF REPRESENTATIVES

7. Introduced by Billy Hughes
“A courageous effort of the
Australian legislature”
(Sir Josiah Stamp)

8. Rate of tax on income from personal exertion
Rate of tax on income from property

9. Australia: taxes in the last century
9
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
1902-03 1912-13 1922-23 1932-33 1942-43 1952-53 1962-63 1972-73 1982-83 1992-93 2002-03 2012-13
Per cent of GDPPer cent of GDP
Australian Government
State and local governments
GST

10. 2015-16: Cth Government
Expenditures
10

11. Types, trends in transfers % GDP
0
1
2
3
4
5
6
7
8
9
10
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Other
Unemployment
Other family benefits
Family Allowances
Incapacity
Survivors
Age
11

12. Cash transfers % of GDP
0
2
4
6
8
10
12
14
16
18
20
Spain Japan Netherlands OECD Switzerland United
Kingdom
New
Zealand
United
States
Canada Australia Korea
OECD (2014); 2012 year statistics
12

13. But we still don’t like paying it
13

14. Tax principles
• Efficiency – I prefer, the goal of Prosperity
• Fairness
• Resilience – in our social-ecological context

15. Size of tax (wedge)
Quantity0
Price
Price buyers
pay
Price sellers
receive
Demand
Supply
Price
without tax
Quantity
without tax
Quantity
with tax
And the quantity declines.
Basic model: economics of a tax
15

16. Resilience
• Systems theory: The capacity of a system to
continually change and adapt yet remain stable
within critical thresholds (Brian Walker et al 2004)
• Or successfully transition to a new viable state
16

17. Tax system resilience
• Stable
• Resistant to planning
– Actual economic behaviour; and planning/arbitrage
• Low compliance, administrative costs
• Adaptable to change, eg
– Work
– Family structures
– Business and investment approaches
– Digital global economy
– Broader social or economic needs, eg environmental
sustainability
• Over short, medium- to long-term horizon
17

18. Resilience: a new stable tax state?
18

19. Adaptive cycles in systems
Source: Walker (2004)

20. Tax level and tax mix % of GDP;
comparative context
20
Per cent of GDP
Note: Excludes superannuation contributions
(but includes social security taxes of other
countries)
0
5
10
15
20
25
30
35
40
Netherlands OECD -
Average
United
Kingdom
Spain New Zealand Canada Japan Australia Switzerland United States Korea
Taxation on income, profit and capital gains
Social security contributions
Taxes on payroll and workforce
Taxes on property
Taxes on goods and services
Black line indicates
company tax
OECD (2014); 2012 year statistics

21. Cth Budget papers 2015-16:
The “credible path to surplus” and
bracket creep

22. Marginal, average PIT rates
2014/2015
0
10
20
30
40
50
60
0
8
16
24
32
40
48
56
64
72
80
88
96
104
112
120
128
136
144
152
160
168
176
184
192
200
208
216
224
232
240
248
256
264
272
280
288
296
304
312
320
328
336
344
352
360
368
376
384
392
400
Marginal Tax Rate (headline) Marginal tax rate (including medicare levy and budget repair levy) Average Tax Rate
22

23. Marginal, average PIT rates 14/15
0
10
20
30
40
50
60
0
8
16
24
32
40
48
56
64
72
80
88
96
104
112
120
128
136
144
152
160
168
176
184
192
200
208
216
224
232
240
248
256
264
272
280
288
296
304
312
320
328
336
344
352
360
368
376
384
392
400
Marginal Tax Rate (headline) Marginal tax rate (including medicare levy and budget repair levy) Average Tax Rate
Min.
Wage
Female
Median
Male
Median
Female Av.
wage
Male
Av.wage
Top 10%
taxable
income
Top 1% taxable
income

24. Effective tax rates on different forms of saving
(32.5% marginal rate)
Assumes 6% nominal return. Nominal effective marginal tax rates by savings vehicles for an individual
on 32.5 per cent marginal tax rate (plus 2 per cent Medicare levy). Does not take account of negative gearing.
(Re:Think 2015)
-10
0
10
20
30
40
-10
0
10
20
30
40
Bank account Own home Property Superannuation
(out of pre-tax
income)
Domestic shares Foreign shares
Per centPer cent
24

25. Net rental losses as a tax shelter
25
-15
-10
-5
0
5
10
15
20
25
30
35
40
$Billion
Gross rent
Rent interest deductions
Rent - capital works
deductions
Rent - other rental
deductions
Net rent
ATO tax statistics 2012-13

26. Tax expenditures for super
Source: Murray (2014 Chart 6 p 138). The data comes from Treasury calculations based on 2011-12 data
from the Australian Tax Office.
26

27. State governments
Federalism Draft Discussion Paper, Fig 1: VFI
27

28. State taxes, 2012-13
% of tax in State tax mix (incl. GST)
0%
5%
10%
15%
20%
25%
30%
35%
40%
GST
allocation
Payroll tax Local
government
taxes
Stamp duty
on property
Non-tax
resource
royalties
Motor
vehicle taxes
Land tax Insurance
taxes
Gambling
taxes
Other taxes

29. Property tax as % of GDP
29
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
United
Kingdom
Canada United
States
Japan Korea Australia Spain New
Zealand
Switzerland OECD -
Average
Netherlands

30. Stamp duties; land tax switch
• Duties are the second largest tax base
– High but volatile revenues in capital cities
– Lumpy, unpredictable
– Why borrow upfront (and pay interest) to pay a lumpy tax when can
– Duties on insurance are the most inefficient
• Land tax
– Harmonize base; change land unit
– Possible different flat rates in States?
– Low flat rate? (Prosper suggests 6%?)
• Political transition; existing land-owners will bear tax on reform –
A.C.T challenge to 2032?
• Revenues will be needed if reform is done, at least in short term
30

31. Thank you!
Questions