As the way we work, where we live and how long we are alive all changes, the question must be asked – where is our tax base going to come from in the future?
If we consider this in the year 2025, as we have done in our new discussion paper, Tax 2025, we can identify two likely sources.
The first is that there is likely to be a drive to user-charges as a source of revenue, rather than through taxation. Congestion charging based on mass-location-time-distance using GPS technology is a major example of this. This is a highly efficient form of raising revenue and, to the extent that it is effective in changing people’s behaviours, can lead to a reduced need for infrastructure expenditure.
Singapore presents an interesting comparison to Australia in the way it approaches tax. It has low corporate taxes, personal income taxes and indirect taxes compared to Australia. But nearly half, 48 percent, of its revenue base is in the form of user-charges outside the three traditional tax bases. For Australia the equivalent amount is about 3 percent. Moving to a system of greater user charges will not be without its political challenges, but technology may assist in ensuring that such charges are efficiently collected.
The second area of increased taxation is likely to focus on the environment. Whether Australia will join in various international emissions trading schemes or whether we will seek to adopt more direct approaches for the reduction in our carbon emissions is difficult to predict.
What would seem to be clear is that our current plans will not result in meeting our promised 2020 climate targets, let alone longer term targets. This will need to be addressed well before 2025 and it is likely that we will see either direct carbon taxation or indirect taxation through an emissions trading scheme, or the use of renewable energy targets.
To find out more about how Australia’s tax system could look in future, read our report, Tax 2025.