Australia’s Tax System Under Scrutiny for Reform Ahead of Next Financial Year

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The Australian government needs help maintaining a balanced budget due to the country’s outdated tax system.

With increased spending requirements, including investments in healthcare and a significant defence build-up, the Labor government is exploring options to boost revenue in the lead-up to budget day.

One of the core issues with Australia’s tax system is the existence of areas of wealth that are practically exempt from taxation. This has led to an over-reliance on income taxes, which are already among the highest in the developed world. 

Australia is forecast to have a budget shortfall of 2% of the gross domestic product in the coming fiscal year.

“There’s a genuine case to do tax reforms,” said Chris Richardson, an independent economist and former Treasury official. “This is the richest generation Australia’s ever seen. You’d like to see it paying its way better than it has been.”

Treasurer Jim Chalmers, responsible for delivering the budget on May 9, has released a list of concessions worth more than A$150 billion ($100 billion) in foregone revenues. 

Suggestions from the Economic Society of Australia to increase resource levies or impose land taxes, as well as the Grattan Institute’s estimate of over A$20 billion in savings from ending certain exemptions, have been made.

“The Australian tax system is in a parlous state,” according to Dr Ken Henry, an economic official who authored the last major reform plan in 2010. “It is not capable of raising sufficient revenue to fund government activities. Certainly not today.”

To ensure long-term economic stability, fair and equitable tax reforms may be necessary to address the country’s structural deficit. The challenge for the government is reconciling the views of those who support tax reforms with those who are mindful of the political implications of such changes.

While there is a structural deficit, implementing fair and equitable tax reforms may be necessary to ensure long-term economic stability.

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