Continuing the discussion from Tax & welfare policy (v2.0):
Another idea we could consider incorporating into our tax policy: adding a standard deduction for income tax filers.
From the Henry Tax Review:
“Currently over 70% of tax filers seek advice from a tax agent, however, 86 per cent either claim no deductions at all or only claim work related expenses, gifts and costs of managing tax affairs. Australia’s use of tax agents is high by international standards; second only to Italy’s.”
This adds extra costs to individuals in terms of employing the services of a tax agent and costs to the public in the form of bureaucracy to process these expense claims and tax returns.
There is currently a complex array of claimable expenses. Instead of having to navigate this (or pay for a tax agent), we should give people the option of simply claiming a standard deduction and leaving it at that. They would not have to keep records/receipts or use a tax agent. We should aim for this to be done electronically and set up so the automatic deduction comes off fortnightly pay as part of the PAYG system rather than having to wait for the EOFY, giving taxpayers more money in their pocket every pay cycle. This would effectively remove the need for the majority of tax payers to have to prepare a tax return, instead allowing them to lodge a default return prepared by the ATO.
The exact amount of the standard deduction would have to be discussed, but could be a percentage discount (say somewhere between 1-2%) off your tax rate up to a certain capped amount.
This could be combined with tighter rules regarding the deductibility of the expense and its role in producing income which would also constrain the scale of work-related deduction claims. However, people with more complex affairs or high expenses would not be disadvantaged as taxpayers would still have the option of substantiating a claim for all eligible expenses if they didn’t want to just claim the standard deduction.
I think this would appeal to a large number of people and fits well with reducing bureaucracy and waste and improving social equity.
Interested to hear peoples thoughts.