The Tax Working Group's recommendations to the Government were released today. The group's key recommendations are:
• The company, top personal and trust tax rates should be aligned to improve integrity. "At the very least the trustee rate, top personal tax rate and rates for savings vehicles need to
be aligned," says the report.
• The company tax rate needs to be competitive with other country's rates, particularly that in Australia. Balancing this factor against the integrity benefits of a fully aligned system will guide choices between an aligned and non-aligned system.
• The top personal tax rates should be reduced as part of an alignment strategy and to help growth. A reduction in personal tax rates across-the-board could be achieved as part of a package to compensate for any increase in GST.
• Increasing GST to 15 per cent would have merit on efficiency grounds, but any increase in the GST rate would require compensation to those on lower incomes, and the current GST base should be maintained.
• 'Base-broadening' is required to address some existing biases, to improve the system's efficiency and sustainability, and is necessary to maintain revenue levels if corporate and personal tax rates are reduced.
The majority of the TWG support detailed consideration of taxing returns from capital invested in residential rental properties on the basis of a 'risk-free rate of return' method.
• Most members of the group 'support the introduction of a low-rate land tax as a means of funding other tax rate reductions'.
• The Group also suggests a number of 'targeted options for base-broadening' should be considered for introduction relatively quickly.
These include: removing the 20 per cent depreciation loading on plant and equipment; removing tax depreciation on buildings if evidence shows they do not depreciate in value and; changing the thin capitalisation rules for foreign-owned companies.
