TREASURER Peter Costello will today announce a sweeping inquiry into Australia's tax system, setting the scene for possible tax reform as well as further tax cuts in the May Budget. The results will enable the Government to identify if and where Australians are being overtaxed. It will involve a comparison of overall taxation levels and rates, as well as coverage of the indirect tax, income tax and company tax systems, showing the areas where Australia leads other countries and where it lags.
The study will cover taxes collected at national, state and local government levels. This is OECD standard practice for international tax comparisons.
But it will no doubt re-ignite the debate over the states' share of GST revenue and highlight "unfair" state taxes such as land and payroll tax.
Personal, business, indirect, property, transaction and superannuation taxes will also be included.
Both Mr Costello and Prime Minister John Howard have already signalled that with a surplus of about $14 billion, there will be tax cuts in the next Budget. Another round of previously legislated tax cuts will also be delivered on July 1.
In the context of Mr Costello's continuing leadership ambitions, the inquiry will give him political "ownership" of tax changes in the Budget.
As well as tax cuts, the Treasurer has been under internal pressure from Malcolm Turnbull and others on the Liberal Party back bench to deliver tax reform.
This would involve restructuring the tax system, abolishing some previously tax-deductible categories to pay for cuts to both the top marginal rate and rates lower down the scale, affecting middle-income earners on $60,000 to $80,000.
But Mr Costello is wary of such restructuring if it involves increasing other taxes to pay for personal tax cuts.
He rejected claims yesterday that people wanted tax reform rather than tax cuts, describing them as "rubbish".
"People are interested in tax cuts – they're not interested in tax reform, which increases their tax," he said. "That's not reform. They want taxes reduced."
It's understood that while examining tax options, Mr Costello became frustrated at what he saw as the selective quoting of international tax figures and comparisons by reform advocates.
He decided that a broad-ranging inquiry would be useful in settling some of these debates.
The inquiry, to be supported by Treasury, will be headed by businessman Dick Warburton and the head of the Australian Chamber of Commerce and Industry, Peter Hendy.
It will report to Mr Costello by April 3.
The inquiry will benchmark Australia's tax system against comparable international countries – the first time such a study has been undertaken.
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