Prosper Australia’s Post

Most local tax systems are falling short of their potential. The tax revenue sources most used by local governments tend to disproportionately weigh on households with fewer resources. Here we explore how local governments raise revenue across the U.S. https://lnkd.in/eaF7KEW7

The Opportunity Zones economic development incentive will likely be a priority for the Trump Administration in next year’s tax bill. That bill should also expand complementary affordable housing tax incentives. Read more in Washington Report. https://bit.ly/4g1EKot.

From our friends at Institute on Taxation and Economic Policy comes this new piece about the role local taxes play in tax equity. Local #taxes are key to thriving communities. One in seven #tax dollars in the U.S.—about $886 billion annually—is levied by local #governments in support of #education, infrastructure, public health, and other priorities. Read it here: https://lnkd.in/eaF7KEW7

As young Treasury officers in the early 1980's a number of us including Paul Tilley were inspired by the case for tax reform, and worked towards achieving it under the leadership of the Treasurer, P.J. Keating. Despite the "burning platform" for a new generation of tax reform, it struggles to gain traction with the community. To quote from this review by John West: "Tillley tells us that while there have been numerous tax reviews at the Commonwealth and state levels, most have not resulted in substantive tax reforms. Hence the title of his book – Australia’s tax reform fortunes have been “mixed”. Indeed, he identifies only three tax reform success stories. They are the Curtin government’s 1942 income tax unification, the Hawke government’s 1985 income tax base–broadening package, and the Howard government’s 2000 consumption tax base–broadening package. Tilley identifies a few key ingredients for making tax reform happen. First, a “burning platform”, like a major problem that needs solving or a crisis, can provide the justification for launching major tax reform. Even with a burning platform, a government needs “political capital”, meaning strong public support, to manage all the vested interests which will oppose reform. A major inquiry into the need for tax reform can help make the case for reform and give everyone all stakeholders a say. Tilley also argues that “fiscal room” is desirable, meaning a sound fiscal position (low public deficits and debt), so that the government can manage any short-term revenue losses and can compensate losers from the reform process. Last, and perhaps most importantly, it is necessary to have “skilled politicians” who can advocate and sell reforms." I think the case that Paul Tilley makes is that it is not "if" but "when", with the current tax system unsustainable.

Mixed Fortunes: A History of Tax Reform in Australia is in bookshops and available online with MUP. Here is a review by John West https://lnkd.in/gwDrAMiG

Taxes have been central to the current election debate. Rising but not for the majority. A massive switch around means a higher proportion of over-65s now pay income tax than working-age adults. We’ve also seen those with the highest incomes contributing more to income tax. Remarkably, despite taxes reaching historic highs, the direct tax burden on average earners is at its lowest level in almost 50 years. This leaves considerable scope for taxes to rise to avoid deep cuts to public services. Latest analysis from the IFS supported by Financial Fairness https://lnkd.in/eBQKgKUp

Yet again, a great public service by Dan Neidle on public perceptions on tax and spending. I disagree with him on one point (which is rare!): I think we should pay attention to the results. Not to follow them - on that we agree. But because, if we want buy-in for better tax policies we need to understand how people feel, and try to change misperceptions. If we don't try to break the political economy vicious cycle, it will continue to feed into ad hoc (often poor) tax policy measures. I know it is hard, and the comments by previous PM D Cameron on tampon tax episode - in essence why bother - is the easier approach in the short-term. But we know where that leads us. So, yes, it's a big struggle, but, as Pessoa (PT poet) said: 'tudo vale a pena quando a alma não é pequena'. Final point - long poat on a too-serious topic for a Saturday morning: others have done it. The Brazilians fought for a big tax reform for over 40 years and got it last year. One of the world's largest democracies, 20+ states, 230m people. This should give hope to everyone else.

New research on how the introduction of simpler tax regimes for the self-employed in France affected behaviour. The authors set out the problem: "The best designed tax incentives may turn out to be ineffective if people do not understand them. Designing a policy that fulfils its stated goals, provides clear and correct incentives without unintended consequences, minimizes administrative hassle for individuals, and at the same time remains sufficiently simple for people to understand is an enormous challenge. Even worse, complexity tends to make the tax system become more regressive if it is mostly the least sophisticated agents or those who cannot afford professional tax advice who cannot understand it and benefit from it." This research looks at how the advantages of tax simplicity balance with the cost - ie. that simplicity may favour tax evasion. Philippe Aghion, Maxime Gravoueille, Matthieu Lequien and Stefanie Stantcheva use individual panel information and the introduction of new and simpler tax regimes for the self-employed in France, in order to assess the extent to which individuals’ shift towards the new regimes is driven by a quest for simplicity, and the extent to which the demand for tax simplicity is itself at least partly driven by tax evasion motives. https://lnkd.in/eKH6ZtHT

Canada’s TaxMatters@EY May issue now available Explore the May issue of TaxMatters@EY for timely Canadian tax information. This month, we summarize the key personal income tax measures tabled in the 2024 federal and provincial budgets. We also examine a situation in which an employer’s effort to encourage carpooling could result in unintended tax consequences for employees. And we look at a recent Federal Court decision that found a taxpayer’s misunderstanding or ignorance of tax rules does not constitute a reasonable error. You’ll find all this and more in the latest edition of TaxMatters@EY.