The Tax Burden
Taxation
There is a saying, Government’s view of the economy could be summed up in a few short phrases – if it moves, tax it; if it keeps moving, regulate it; if it doesn’t move, subsidise it.
The records of Australian Federal Budgets in the last 20 years represent an accurate reflection of the joke. More than that, we have allowed our society to be taxed and subsidised into nigh nihilism. A merry-go-round where the not-in-need still reach in to take a bit for every circle simply because free money is offered by government in advance of elections.
The U.S. Administration is expected to reform the U.S. tax regime fundamentally. The waste, corruption and inefficiency found by the Department of Government Efficiency (DOGE) has been endorsed by Congress to be dealt with in principle, with rescission packages to be submitted by the White House for specific departmental budget cuts in the future. Politics is expected to delay efficiency gains from being monetised for taxpayers. But the momentum for government waste reduction is unlikely to be reversed. The Trump first term tax cuts have been pushed through, with a notional increase in the national debt ceiling of about $2 trillion. This is notional because it is based on the cautious Office of Budget Management’s modelling, which does not account fully for the net dynamic positive effect of the tax cuts. Having found the DOGE cache, it is reasonable to hope for a taxpayer dividend from the Government amounting to 10-20% of the Federal budget or, say, $US0.5 trillion. This total amount might be returned in part or in full over the term of the Trump administration. Adding to that savings from reducing parts of the Federal public service, the government could end up with $US1 trillion savings annually looking forward to the end of the term. A total savings dividend of up to $US7,000 on average per taxpayer in the next three years would set the benchmark for future conservative governments. This could be implemented through further tax cuts or more services from the more efficient bureaucracy.
The U.S. government has also flagged that it was looking at eliminating tax on income up to $US150,000. Let’s not get too far ahead of ourselves and assume a zero-income tax rate for average earners in the U.S. of around $US50,000. For Australia, this would equate to average earners of $80,000 not having to pay net income tax.
Why is the reform situation in the U.S. important for Australia? Because these U.S. pressures are not academic. They will be transmitted to Australia and other U.F.N. members, at least the OECD members, through the international trading and financial system. Global competitiveness is not going away, regardless of domestic political spinning, in a world where every country is still clamouring for free trade with the U.S. For Australia, accounting for government benefits coming back their way, taxpayers with up to $45,000 income may not be paying a net tax at present. It is then a question why incurring costs and waste in having the government take with one hand and give back with the other. Why not have a zero-tax rate for up to $45,000 and eliminate middleman’s costs. This begs the question, why not have a zero-income tax system and rely fully on the GST? Part of economic theory does support this approach, the rationale being to encourage wealth building while deterring excessive consumption. The counterargument is that if people don’t have skin in the game – such as personal income tax, or PIT – they might lose interest in keeping the game clean and healthy. We all should pay some tax to care for Australia. Reality is that the country relies so much on PIT and company tax that it would take the GST to rise to 40+% to make up for elimination of PIT and business taxes. To transfer to a consumption tax only system, we’d need to get used to cutting the size of government first. It is perfectly feasible to reduce the total size of government expenditure, of the total tax revenue base as a proportion of GDP, because of the sheer amount of tax revenue collected at present. Any budget savings should be used to cut PIT and business taxes and the national debt and boost national defence.
The Tax Foundation’s International Tax Competitiveness Index 2025 highlights the most competitive tax rates in different countries around the world, and for the 11th consecutive year Estonia achieves the highest score. This was mainly due to its 20 percent tax on corporate profit that is applied only to distributed profits, encouraging retained earnings for business expansion, a 20 percent tax on individual income that is not applying to personal dividend income, a property tax that is applied only to the value of land, and an exemption on 100 percent of foreign profits earned by domestic corporations. If Australia wishes to stay and play in the U.F.N., it will have to compete based on the new paradigm – low-cost, high-quality products and services that make an immediate positive impact on citizens’ living standards. Whatever leading nations of the U.F.N. do, Australia must do better. Thus, the FY26 Federal Budget is already outdated. Nothing substantial is said about economic reform to encourage supply growth to tame the simmering underlining inflationary pressure or dealing with the uncertainties of the restructured global economy. The government expected a “soft landing” of 1.5% growth in FY25 rising to 2.25% in FY26 and 2.5% in FY27. This is hardly a vision for Australia.
The Henry Tax Review
The Australia’s Future Tax System Review, commonly known as the Henry Tax Review, was commissioned by the Rudd Government in 2008 and published in 2010. It aimed to provide a long-term blueprint for reforming Australia’s tax and transfer system to address economic, social, and environmental challenges over the next 20 years. The review made 138 recommendations under nine themes, focusing on equity, efficiency, simplicity, sustainability, and policy consistency. Below are the main recommendations from the Review, summarised to highlight the most significant proposed changes to the tax system, with a focus on their intent and potential impact.
1. Reduce Reliance on Personal Income Tax
Simplify personal income tax by reducing the number of tax brackets and introducing a higher tax-free threshold. Abolish tax offsets and replace them with a simpler structure.
High marginal tax rates discourage workforce participation and create complexity. A higher tax-free threshold would reduce the tax burden on low-income earners, but the review noted that average earners (eg, $58,000 annually) might face higher effective rates without offsets, requiring careful transition.
2. Introduce a Broad-Based Land Tax
Replace inefficient state stamp duties with a broad-based land tax applied to all land, including owner-occupied housing, with exemptions or concessions for low-income households.
Stamp duties are volatile and discourage property transactions, while a land tax would provide a stable revenue base and encourage efficient land use. This was seen to address housing affordability and reduce state reliance on distortionary taxes.
3. Lower Company Tax Rate
Reduce the company tax rate to 25% over the short-medium term to enhance Australia’s competitiveness for investment.
A lower corporate tax rate would attract investment and boost economic growth, especially in a globalised economy with increasing competition for capital. This was paired with recommendations for better taxing economic rents (eg, from resources).
4. Replace Stamp Duties with Consumption-Based Taxes
Phase out inefficient state taxes like stamp duties on property conveyances and insurance taxes, which increase costs for risk management, especially during environmental crises (droughts, floods), and replace them with a broad-based cash flow tax or reformed consumption tax (though GST changes were excluded from the review’s scope).
5. Streamline Transfer Payments
Reform the transfer system (eg, pensions, family payments) to reduce complexity and improve integration with the tax system. Use the 2009 Pension Review as a benchmark for payment adequacy, focusing on structural relationships rather than individual payment rates.
The transfer system’s complexity creates high compliance costs and disincentives for workforce participation. Better integration with taxes would enhance efficiency and equity, particularly for low-income households.
6. Enhance Tax System Transparency
Publish a tax and transfer statement every five years to analyse system performance, including efficiency costs and distributional impacts. Make tax data available to researchers and support independent tax policy research institutions.
Transparency and evidence-based analysis would improve public debate and policy design, reducing ideological or impressionistic reforms.
7. Reform Fringe Benefits Tax (FBT)
Simplify FBT, particularly for car fringe benefits, by setting a flat rate per kilometre rather than reducing benefits with higher vehicle usage to cut incentives for unnecessary driving.
8. Better Target Not-for-Profit (NFP) Tax Concessions
Reform NFP tax concessions to focus on altruistic activities, taxing profits from unrelated commercial activities. Introduce a statutory definition of “charity” for consistency across Commonwealth laws.
9. Simplify Small Business Taxation
Streamline tax compliance for small businesses, potentially through simplified accounting methods or lower compliance burdens, to encourage entrepreneurship.
Small businesses face disproportionate compliance costs, which hinder growth and innovation. Simplification would boost productivity and competitiveness.
Context and Implementation Challenges
Scope Limitations: The review was restricted from recommending changes to the GST rate or base, superannuation payments for retirees over 60, or pre-announced personal income tax changes, which limited its ability to address consumption tax reforms directly.
Limited Implementation: Only three of the 138 recommendations were initially implemented by the Rudd government, most notably the Resource Super Profits Tax (later replaced by the Mineral Resource Rent Tax). Political resistance, the global financial crisis, and the poor structure of the tax hindered broader adoption.
Relevance to GST Introduction: While the Henry Review postdates the GST’s introduction in 2000, it noted that the GST’s benefits (replacing inefficient taxes like stamp duties) had been “completely undone” by base erosion and reliance on distortionary state taxes like payroll tax, which it recommended phasing out.
Address Intergenerational Inequity: Reform the tax system to reduce the burden on younger workers, who face higher personal income tax pressure due to bracket creep and an aging population’s reliance on public spending on health and pensions. Shift to taxes with lower economic costs, like consumption or land taxes.
The tax system is increasingly inequitable, with younger generations bearing a disproportionate burden. A shift to broader-based taxes would improve fairness and sustainability, especially as personal income tax receipts are projected to grow.
Resource Rent Tax
One recommendation was to replace state-based resource royalties with a federal Resource Super Profits Tax (RSPT) to capture economic rents from non-renewable resources, particularly in mining-heavy states like WA.
Royalties are seen as volatile and inefficient, as they tax production rather than profits. A rent-based tax would ensure fairer revenue from finite resources, reduce budget volatility, and align with economic efficiency. The RSPT was controversial because its proposed cut-in profit rate was too low, not realistic for the high-risk mining sector, and later replaced by the less ambitious Mineral Resource Rent Tax (MRRT) under the Gillard government.
The Henry Review aimed to create a tax system that supports economic growth, reduces complexity, and addresses intergenerational inequity. Its focus on replacing inefficient taxes (stamp duties, payroll tax) with broad-based alternatives (land tax, cash flow tax) echoes the GST’s original intent to streamline state revenues. However, as Dr. Henry noted in 2023, the tax system has deteriorated since 2010, with ongoing reliance on PIT and business taxes and volatile state taxes undermining fairness and efficiency. Our view is the Review does not go far enough in lowering the total tax burden on society or revamping the PIT and business taxation, while introducing trade-off complexities such as terminating the CGT discount for longer term assets’ sale. CGT rates should always be lower than the marginal PIT and business tax rates to encourage investment.
A Sample Tax Reform Package
We propose a tax reform package that addresses the main thrust of the Henry Tax Review while improving on what we consider to be the core needs of a simpler, fairer, family oriented, free enterprise and meritorious society.
Change personal income tax rate to zero for earners up to $25,000; 10% for income up to $80,000; 15% for up to $160,000; 25% up to $320,000; 35% for all income above
Allow main bread winner to split 20% of income with stay-at-home spouse with one child, plus 10% of income for each additional child up to 50% of income (note: beyond 3rd child there is no gain in further income splitting due to progressive tax rates)
Cancel all offsets and subsidies to households except pension related (avoid government subsidies costing 1/3 transfer cost) – PIT reduction to pass spending decision onto taxpayers
Cut small business (up to $3 million turnover) tax rate to 15%, and 25% above that
Cap all company tax rate at 25%
Halve the Stamp Duty (SD) rate for all real estate transactions including commercial and residential properties (to incentivise govt to prioritise housing affordability instead of relying on housing shortages to collect higher SD payments)
Apply a 0.1% land tax on all unimproved land ($1 per $1000 unimproved value of land)
No unrealised capital gain tax of any form – irrational to tax ghost profit
Medicare levy capped at 2% of income – room for reduction
Eliminate payroll tax – irrational to tax job creation
Eliminate luxury car tax – protectionist tax not needed due to closure of local car industry; neither an envy tax needed given progressive PIT system
No change to GST or pension – NDIS should be fundamentally reviewed as a separate project discussed further below to deal with significant waste and inefficiencies.
PIT and Company Tax
The impact is based on estimates of each measure’s effect on federal and state revenues, considering behavioural responses, economic flow-on effects, and interactions between the reform items, using approximation of economic data from 2023-25 with the principles and assumptions grounded in the tax system, the Henry Review and other sources. Using 2023-24 and 2024-25 fiscal data as a baseline where applicable, we adjusted them for inflation and economic growth to approximate 2025-26. This proposed reform is aimed at reducing the size of the ultra-obese government at all levels; hence it is not for opening up government budget deficits. Recurrent spending must be trimmed materially.
The Baseline Revenue Context (2025–26 Approximation)
Total Tax Revenue: Federal $640 billion, state $110 billion.
Key Revenue Sources (from prior analysis):
Personal Income Tax (PIT): $300 billion
Company Tax: $120 billion
GST: $90 billion (distributed to states)
Medicare Levy: $20 billion
State Stamp Duties: $26 billion
State Payroll Tax: $36 billion
Luxury Car Tax: $1 billion (ATO data, 2023–24).
Based on Australia’s population of 27 million, with 13.5 million taxpayers, GDP of $2.7 trillion (from 2023-24 of $2.5 trillion), the following are estimates of the net impact on Federal and State Revenue (not on taxpayers’ position).
(Zero rate up to $25,000, 10% to $80,000, 15% to $160,000, 25% to $320,000, 35% above; all income thresholds are indexed to CPI):
Current Structure (2024-25): Tax-free threshold at $18,200; rates of 19% ($18,201-$45,000), 32.5% ($45,001–$120,000), 37% ($120,001-$180,000), 45% ($180,001+). Stage 3 tax cuts (effective 2024) lowered rates slightly for middle incomes.
Proposed Structure: Simplifies to a higher tax-free threshold ($25,000) and flatter rates, reducing tax for low-to-middle earners and for high earners below $320,000.
Revenue Impact:
Low-Income Earners: Raising the tax-free threshold from $18,200 to $25,000 reduces taxable income by $6,800 per taxpayer. For 6 million low-income earners (earning $25,000-$45,000), this saves $1,292 per person (19% × $6,800). Total revenue loss: $7.8 billion (6 million × $1,292).
Middle-Income Earners: For incomes $45,000-$80,000, the rate drops from 32.5% to 10%. Assume 4 million taxpayers in this bracket with average taxable income of $60,000. Current tax: $11,600; proposed tax: $3,500 ($60,000 – $25,000 × 10%). Loss per person: $8,100. Total loss: $32.4 billion (4 million × $8,100).
Upper-Middle Earners: For incomes $80,001-$160,000, the rate drops from 32.5%-37% to 15%. Assume 2 million taxpayers with average income $100,000. Current tax: $24,000; proposed tax: $11,250 ($80,000 – $25,000 × 10% + $20,000 × 15%). Loss per person: $12,750. Total loss: $25.5 billion.
High-Income Earners: For incomes $160,001-$320,000, the rate drops from 37%–45% to 25%. Assume 1 million taxpayers with average income $200,000. Current tax: $55,000; proposed tax: $36,250. Loss per person: $18,750. Total loss: $18.8 billion.
Very High Earners: For incomes above $320,000, the rate drops from 45% to 35%. Assume 0.2 million taxpayers with average income $500,000. Current tax: $183,000; proposed tax: $108,250. Loss per person: $74,750. Total loss: $15 billion.
Total PIT Revenue Loss: $7.8B + $32.4B + $25.5B + $18.8B + $15B = -$99.5 billion.
Dynamic Effects: Higher disposable income for low-to-middle earners could boost consumption, increasing GST revenue by $2-3 billion (assuming a 0.1-0.15 multiplier on $60 billion additional disposable income). Net loss: -$96.5 billion.
Higher GDP growth by 1 percentage point, $2.7 trillion x 1% = $27 billion, x 700 billion tax share / GDP $2.7 trillion = $7 billion positive offset
Net impact: -$89.5 billion.
Income Splitting for Stay-at-Home Spouse
Proposal: Main breadwinner can split 20% of income with a stay-at-home spouse with one child, plus 10% per additional child, up to 50%. Assume applied after the $25,000 tax-free threshold.
Assumptions: 1 million households with a stay-at-home spouse and 1–3 children. Average breadwinner income: $100,000. Split proportions: 60% one child (20% split), 30% two children (30% split), 10% three+ children (50% split).
Revenue Impact:
One Child (20% split): 600,000 households. Income split: $20,000 to spouse (taxed at 0% as below $25,000). Breadwinner’s taxable income drops from $100,000 to $80,000. Current tax (after reform): $5,500 ($55,000 – $25,000 × 10%). Without split: $8,500 Loss per household: $3,000. Total: -$1.8 billion.
Two Children (30% split): 300,000 households. Split: $30,000 to spouse ($5,000 taxable at 10% = $500). Breadwinner’s taxable income: $100,000 falls to $70,000. Tax: $5,000. Without split: $8,500. Loss: $3,500. Total: -$1.05 billion.
Three+ Children (50% split): 100,000 households. Split: $50,000 ($25,000 taxable at 10% = $2,500). Breadwinner’s taxable income: $50,000 ($2,500 tax). Total tax: $5,000. Without split: $8,500. Loss: $3,500. Total: -$0.35 billion.
Total Revenue Loss: -$1.8B + -$1.05B + -$0.35B = -$3.2 billion.
Dynamic Effects: Will incentivise single-income households, reducing workforce participation and slightly lowering PIT revenue further (-$0.5 billion).
Net impact: -$3.7 billion.
Cancel All Offsets and Subsidies Except Pension-Related
Current Offsets/Subsidies: Includes Low Income Tax Offset (LITO, up to $700), Low- and Middle-Income Tax Offset (LMITO, ended 2024 but assume similar), family tax benefits, childcare subsidies, etc. Excluding pensions, household subsidies cost $20 billion annually (ATO and DSS data).
Revenue Impact: Abolishing non-pension offsets/subsidies saves $20 billion. Assume 1/3 middleman costs (public service admin) = $6.7 billion. Net savings: $26.7 billion(getting rid of subsidies carries cancellation of middleman costs).
Dynamic Effects: Reduced support for low-income families may lower consumption, reducing GST revenue by $1 billion.
Net savings: +$25.7 billion.
Small Business Tax Rate Cut (15% up to $3M turnover, 25% above)
Current Rate: 25% for small businesses (turnover < $50M), 30% for larger firms.
Assumptions: 2 million small businesses with turnover < $3M contribute $20 billion in tax (average profit $100,000 × 25%). Larger firms (0.5 million) contribute $100 billion at 30%.
Revenue Impact: Small business: New rate 15%, 10% on $20 billion = -$2 billion.
Dynamic Effects: Lower rates could boost small business investment, increasing profits and tax revenue by $0.5 billion.
Net impact: -$1.5 billion.
Cap Company Tax Rate at 25%
Current Rate: 30% for firms with turnover > $50M. Revenue: $100 billion.
Revenue Impact: 5% rate cut on $100 billion = -$5 billion.
Dynamic Effects: Increased investment may raise profits, offsetting $1-2 billion.
Net impact: -$3.5 billion.
Halve Stamp Duty Rates on Real Estate
Current Revenue: $26 billion across states (eg, NSW $10B, Vic $7B, WA $2B).
Revenue Impact: Halving rates reduces revenue by 50% = -$13 billion.
Dynamic Effects: Lower duties may increase property transactions, recovering $2-3 billion.
Net impact: -$10.5 billion.
0.1% Land Tax on All Unimproved Land
Assumptions: Total land value in Australia $8 trillion (ABS data, including residential, commercial, rural). 0.1% tax = $8 billion. Assume 20% exemptions (eg, low-income households, charities), so $8 billion x 80% =
Revenue Impact: +$6.4 billion.
Dynamic Effects: May deter land hoarding, increasing transactions and stamp duty/GST revenue ($1 billion).
Net impact: +$6.2 billion.
No Unrealised Capital Gains Tax
No change from current system (realisation-based CGT).
Net impact: $0 but significant impact on capital allocation decision.
Cap Medicare Levy at 2%
Current System: 2% for most taxpayers, low-income exemptions. Revenue: $20 billion.
Impact: Capping at 2% aligns with current rates for most, with minor savings for high earners. Assume negligible impact: -$0.5 billion.
Dynamic Effects: Minimal, as high earners rarely exceed 2%.
Net impact: -$0.5 billion.
Eliminate Payroll Tax
Current System: Payroll tax is a state-based tax on employers’ wage bills above certain thresholds (eg, $1 million annually in Western Australia, taxed at 5.5%-6.5%). In 2023-24, payroll tax generated $34 billion across states (NSW $10B, Vic $8B, WA $5B, etc.). For 2025–26, assume $36 billion on wage growth.
Revenue Impact: Taking out payroll tax results in a direct revenue loss for states of -$36 billion.
Dynamic Effects:
Positive: Lower labour costs could increase employment and wages, boosting PIT ($2-3 billion, assuming 0.1% wage growth for 10 million workers) and GST ($1 billion from increased consumption).
Negative: States may seek alternative revenue (eg, higher land taxes or GST reliance), but this is constrained by the proposal’s fixed GST rate/base.
Dynamic effect: $3-4 billion.
Net impact: -$32 billion.
Eliminate Luxury Car Tax (LCT)
Current System: LCT is a federal tax of 33% on the GST-exclusive value of luxury cars above a threshold ($76,950 for 2023-24, $80,000 for 2025-26, or $89,332 for fuel-efficient vehicles). It generated $1 billion in 2023-24 (ATO data).
Revenue Impact: Abolishing LCT results in a federal revenue loss of -$1 billion.
Dynamic Effects:
Positive: Lower car prices could boost sales, increasing GST revenue ($0.1-0.2 billion, assuming 10,000 added luxury car sales at $100,000 each, 10% GST).
Negative: May reduce demand for fuel-efficient vehicles, slightly impacting environmental goals.
Dynamic effect: ~$0.1 billion.
Net impact: -$0.9 billion.
Federal Revenue Changes
PIT Reform: -$89.5 billion
Income Splitting: -$3.7 billion
Offsets/Subsidies: +$25.7 billion
Small Business Tax: -$1.5 billion
Company Tax: -$3.5 billion
Medicare Levy: -$0.5 billion
Net impact: -$89.5 - $3.7 + $25.7 - $1.5 - $3.5 - $0.5 - $0.9 = -$73.9 billion
State Revenue Changes
Stamp Duty: -$10.5 billion
Land Tax: +$6.4 billion
Net impact: -$10.5 + $6.4 - $32 = -$36.1 billion
Total Federal and State Revenue Impact: -$73B + -$4.1B = -$110.0 billion.
This sample proposal provides a material pullback on the unsustainable growth in government spending that has driven the national debt to past $1 trillion. Fiscal discipline, amid not severe in our view considering the risky geopolitical environment, is needed to reverse poor productivity.
Unrealised Capital Gain Tax
The FY26-28 budgets contain additional unpaid net discretionary spending of $60 billion. This relies on the new superannuation tax on unrealised capital gain on retirement savingsbalances above $3 million. The government already doubled the tax on super contributions in 2023 to 30%. It has passed legislation in the Senate and in time it will likely seek to lower the Unrealised Capital Gain Tax (UCGT) threshold balance and go for small business and residential properties and start-ups. Higher spending on Net-Zero programs, National Disability Insurance Scheme, aged care, Defence, state government liabilities and infrastructure projects has pushed the nation’s finances into long-term structural deficit.
The UCGT is based on the view that even earnings that are not ascertained by private individuals can be taxed by the state, regardless of whether the earnings will be there or not when the asset holder wishes to sell. This notion is based on “anecdotal evidence” of wealthy citizens with large stockholdings and no income being able to live well by borrowing from banks using shares as collateral, to spend on day to day living so effectively obtaining an income without paying tax. This nonsense ignores the fact that if the value of the share portfolio falls, the borrower remains exposed to the same debt. Effectively, if an asset has increased in value and tax is imposed on the gain and you have paid it, if the asset value falls in the following year when you sell it, the ATO will not refund you. You will have lost in asset value as well as unwarranted tax. The impact will deter investment in small enterprises including housing construction. This bad idea could not have come at a worse time. If introduced, it will place pressure on cash-strapped small businesses, farms and retirees. Some will be forced to sell assets to pay tax even when they don’t want to sell.
The only reason why a UCGT is even considered is due to government spending being so high there is no option but to raise tax from all corners of the economy.
Australian Experiences
Australian studies examining the relationship between tax rates and government revenue in the spirit of Thomas Sowell’s work, using historical data, corroborate his results. These Australian analyses often focus on the Laffer Curve – theoretical and empirical framework showing an inverted U-shaped relationship where revenue rises with tax rates up to an optimal point, then falls due to disincentives like reduced work effort, investment, or income shifting. Australian research tends to be more academic and policy-oriented, incorporating microdata from the ATO and simulations of reforms, rather than broad historical narratives. Key examples draw on ETI to estimate revenue-maximising rates, like Sowell’s emphasis on behavioural responses. While no single study mirrors Sowell’s comprehensive U.S.-centric historical sweep, Australian economists have produced rigorous empirical work on specific reforms and elasticities, showing that tax cuts can sometimes boost revenue by broadening the base. The prominent studies are:
Tax Reform and the Laffer Curve (NBER Working Paper No. 34059, 2025) by Steven Hamilton (George Washington University, formerly ANU) and Kevin Markle (University of Michigan)
Focus: Analyses Australia’s 2024 Stage 3 personal income tax reform (effective July 2024), which flattened rates (merging 32.5% and 37% brackets into 30%, raising the 45% threshold); Uses ATO microdata (2019-20 tax returns) and ETI estimates (0.2–0.5 for average earners, higher for top 1%) to simulate Laffer effects.
Key Findings: The original proposal would have placed 15% of mostly middle-income taxpayers on the “wrong side” of the Laffer Curve, where rate hikes reduce revenue due to bunching and avoidance like salary sacrificing; Revised design limited this to 5%, with net revenue gains from base expansion; Estimates revenue-maximising marginal rates at 40-50% for most, but 30-35% for high earners due to shifting; Echoes Sowell by showing tax cuts increased GDP by 0.5-1% via incentives, raising total revenue 2-3% above static forecasts.
Relevance: Empirical simulation akin to Sowell’s Kennedy/Reagan analyses; highlights how progressive reforms can inadvertently shrink revenue if ignoring endogeneity (taxable income responses); Funded partly by Australian Research Council.
The Individual Laffer Curve: Evidence from the Spanish Income Tax (Empirical Economics, 2024) – Australian-Hosted Analysis by Ana Gamarra Rondinel (University of Melbourne)
Focus: Though using Spanish microdata, this is published via the Melbourne Institute (University of Melbourne’s applied economics center) and explicitly references Australian policy debates (eg, Stage 3 cuts); Derives individual-level Laffer Curves using schedular tax structures and ETI (estimated at 0.3–0.6 via bunching methods).
Key Findings: Revenue-maximizing marginal rates average 45–55%, with 10–15% of top earners on the descending side (where cuts raise revenue); Aggregate simulations show a 5% rate cut for high brackets could increase total revenue by 1–2% via reduced evasion; Applies to Australia by noting similar bracket creep issues, estimating that Australia’s 45% top rate (plus Medicare levy) borders the peak for executives.
Relevance: Micro-empirical approach parallels Sowell’s data-driven examples; hosted on Australian.edu.au site, with blog extensions (Austaxpolicy, 2023) linking to local reforms, arguing cuts like Stage 3 avoid “prohibitive” zones.
Rethinking the Laffer Curve from an Individual Approach: Evidence from the Spanish Income Tax (Austaxpolicy Blog, University of Melbourne, 2023) by Ana Gamarra Rondinel
Focus: Extension of the above, using Spanish Institute for Fiscal Studies microdata but tailored to Australian contexts like the 2012-24 tax changes; Computes per-taxpayer revenue-maximising rates and ETIs (ETI >1.0 triggers descending curve).
Key Findings: In Australia-like systems, 20% of filers face rates above their personal peak (35-45%), leading to 0.5-1% revenue loss from hikes. Post-Stage 3, revenue rose 4% in FY2024-25 (ATO data) due to base growth, supporting self-financing cuts. Warns against hikes without base-broadening.
Relevance: Directly invokes Sowell-like logic for Australia’s 1980s-2020s reforms (eg, 1985 cuts from 60% top rate increased revenue 15% by 1990 via growth).
Empirical Tradition: Australian studies often use ATO’s longitudinal data (eg, via Treasury’s Tax Expenditures Statement) for ETI estimates, showing elasticities of 0.4-0.7, which is higher than U.S. averages in Sowell’s work, implying a lower revenue-maximising rate (about 40%) due to mobile capital. A 2022 Treasury modelling (unpublished but cited in parliamentary reports) on corporate tax cuts (30% to 25%) found revenue neutrality via investment inflows, akin to Sowell’s Reagan example.
Historical Parallels: Like Sowell’s U.S. cases, Australia’s 2000s GST introduction (broad-based 10%) and 1980s income tax reductions correlated with revenue surges (eg, +20% post-1985), attributed to base expansion rather than rates alone (per Productivity Commission reports).
Economy-wide, top rates at 45% risk it for high-net-worth individuals (HNWIs), per Grattan Institute analyses (2024).
A Maxed-Out Tax System
Given the consistent results from studies around the world, it should be a no-brainer for Australia (and other Western countries) to cut business and personal income tax rates as much as possible within the context of transferring productive resources to the private sector, and to cut total government tax takes as a portion of GDP to pre-empt corruptive and wasteful spending. What is remarkable about these transnational studies and experiences is that the Western world is numb to the concept of government by the people for the people. Rather than posing the question, at what tax levels to GDP should the people allow government to take to undertake the fundamental functions of defence and arbitration, taxation studies focus on at what maximum tax take the government can get away with without breaking the camel’s back. It is an insidious paradigm that defies what free market liberal democracy is about.
The irrational thing is that Sowell’s and Australian studies prove that cutting tax rates raises the tax base through GDP growth due to the right incentives. Regardless of whether ETI is close to 1 or not, Australians have the right to expect lower tax rates by themselves and by the fact that tax rate reduction will not automatically or proportionally cut tax revenue. Preliminary calculations show Australia should aim for a total government spending cap of 20% of GDP, to be reached over 3-5 years. This means a real reduction in government spending of 2-3 percentage points of GDP per year. Setting this total government budget cut relative to GDP does not mean the dollar spend on core government services will be cut proportionally. Reasons:
Business and personal income tax cuts lead directly to higher GDP growth, which mitigates the rate cuts
Higher tax revenue from GDP expansion gives government the opportunity to switch spending from distorting private sector activities to supporting the core public services better
A switch from public to private sector does not mean net loss, it means a reallocation of resources within the economy that always results in net gains.
The combined impact of these policies will take Australia back to the core values set out at the start of this book – a less bloated government relative to the total economy, with more than sufficient tax revenue to carry out efficiently the main functions of government, unleashing private sector creativity and productivity for wealth creation while minimising ideology driven wasteful spending.
There is a long list of Government owned assets in the economy that cannot be justified on any grounds. It is a forgotten trough used mainly for government cronies for political purposes. Current financial year funding by government for the Australian Broadcasting Corporation amounts to $1.23 billion. Next financial year to June 2027 will see funding increase by $30 million annually until 2029. Other pointless holdings are in SBS and Qantas and other government or private trading enterprises. They don’t serve any purpose of government other than tempting it into ideological propaganda.
Tax Driven Migration
Even more disappointing is the need for studies and reports exploring the migration of high-net-worth individuals and the super-rich from the U.K., often attributing it at least partly to tax policy changes like the abolition of non-dom status, hikes in capital gains tax (CGT) rates (up to 28%), inheritance tax (40%, one of the most hideous concepts in a free market open society), and a rising overall tax burden (37% of GDP, the highest since 1947). Empirical analyses using U.K. tax authority (HMRC) data show tax changes prompt some emigration among the wealthy, but the effect is small overall, with elasticities (sensitivity of residency to net-of-tax rates) of around 0.1-0.2% - meaning a 1% tax hike reduces residency probability by 0.15%.
Destinations are rarely tracked in these studies, but general patterns point to low-tax havens like the UAE while moves to the U.S. are less emphasised, often tied to business opportunities rather than pure tax arbitrage. These link outflows to lower relative tax rates in destinations like the UAE (0% personal income tax and CGT) and the U.S. (top federal income tax 37%, CGT 20%, plus state variations but often more favourable for investors).
So, after sacrificing your working life to your country, you are now being forced into exile because of the monstrous bloat of the public sector that has become not just a parasitic sector but oppressive one as well. This is unfair for both the government workers in their rightful proper functions and the private sector taxpayers that are forced to consider moving and those remaining taxpayers who cannot afford to move even if they want to. They all must choose between country and freedom and fairness.
