The purpose of this thread is as a discussion of the recommendations in the Henry tax review in the absence of party political discussion.
Henry's recommendations as follows;
Below are some recommendations from the review with additional thoughts on further simplification.
Recommendation 2: Progressivity in the tax and transfer system should be delivered through the personal income tax rates scale and transfer payments. A high tax-free threshold with a constant marginal rate for most people should be introduced to provide greater transparency and simplicity.
Recommendation 5: The Medicare levy and structural tax offsets — the low income, senior Australians, pensioner and beneficiary tax offsets — should be removed as separate components of the system and incorporated into the personal income tax rates scale. If a health levy is to be retained, it could be applied as a proportion of the net tax payable by an individual.
Recommendation 11: A standard deduction should be introduced to cover work-related expenses and the cost of managing tax affairs to simplify personal tax for most taxpayers. Taxpayers should be able to choose either to take a standard deduction or to claim actual expenses where they are above the claims threshold, with full substantiation.
Any standard deduction should be integrated into marginal tax rates with an increase in the tax free threshold the most logical option. Beyond that there should be no work related deduction for wage and salary earners. Overall this would be simpler and would better preserve the income tax base.
Recommendation 12: There should be a tighter nexus between the deductibility of the expense and its role in producing income.
Agreed. Inparticular, geared investment losses should only be claimable against like investment income. A property owner for example should only be able to gear against income from property (as an asset class) and not wage/salary income. This would strengthen the income tax base allowing for further reductions in marginal rates.
Recommendation 14: Provide a 40 per cent savings income discount to individuals for non-business related:
a.net interest income;
b.net residential rental income (including related interest expenses);
c.capital gains (and losses); and
d.interest expenses related to listed shares held by individuals as non-business investments.
This is an interesting one and if applied should extend to all expenses relating to investment income. Depending on overall budget balance it could be started at a lower rate and increased as budget constraints allow.
With regard to franked dividends, these should simply be tax exempt in the hands of the shareholder. This would strengthen the corporate tax base and possibly increase the scope for a reduction in the corporate tax rate (to 25% ?). An investor should then not be allowed to claim deductions against such tax exempt income.