Why Tax Reform Falters in the UK and Australia
Unlocking consensus on tax reform in the UK and Australia is hindered not by a lack of viable ideas but by deep-seated political and generational divides that impede progress, particularly in addressing intergenerational equity.
UK: Reform Overshadowed by Rhetoric
Debate in the UK is often hijacked by populist rhetoric around issues like “wealth taxes”, distracting from reforms with broad support among experts.
Dan Neidle and others have highlighted practical steps, such as modernising inheritance tax while protecting family businesses, rebasing capital gains, shifting from stamp duty to a land value tax, and simplifying the VAT and corporate tax systems, that could enhance both fairness and efficiency.
Implementing such changes is challenging, as vested interests and media-driven narratives often overshadow informed policy debates, limiting public understanding and appetite for reform.
Australia: Inequity in Focus
Australia faces distinct but related problems. Treasurer Jim Chalmers and leading economists have identified the tax system’s most significant flaws as those that favour older, asset-rich Australians over younger wage earners, thereby exacerbating issues such as housing affordability and savings gaps.
Policy proposals that focus on intergenerational fairness include rebalancing concessions on superannuation, taxing capital gains and retirement income more fairly and reforming family trusts. A Productivity Commission report proposed cutting the corporate tax rate to 20% for most companies and introducing a 5% net cash flow tax to encourage investment.
Fiscal Realities in Both Countries
Both countries confront growing budget pressures, which amplify the need for reform. In the UK, slow growth, rising debt, and increasing demands for social care limit fiscal flexibility. Australia is contending with rising healthcare and pension costs as the population ages, and stagnant productivity threatens revenue resilience.
Barriers to Reform
- Short electoral cycles: Discourage long-term policy planning.
- Vested interests: Such as beneficiaries of capital gains and superannuation concessions actively defend existing privileges.
- Cultural resistance means that any tax measure is quickly labelled a “tax grab,” fueling public distrust.
Breaking the Deadlock
- Independent fiscal modelling to clarify trade-offs and counter misinformation.
- Citizens’ assemblies to build legitimacy for politically challenging reforms and give voice to younger generations.
- Federal-state coordination in Australia to reform inefficient state taxes.
- Staged implementation so that reforms remain adjustable if unintended consequences arise.
- Time-bound compensation for transitional losers, e.g. farmers and retirees.
Conclusion
The UK and Australia are not short on ideas - they are short on will. Leaders need to commit to rebuilding trust and rebalancing fairness between generations.
Get In Touch
For more information please contact Michael Velten.
michael@veltenadvisors.com
+6590687547
37 Ann Siang Rd, Singapore 069715
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