It is so well rewarded for those with high enough incomes to justify accountants, lawyers, residences in the Bahamas or wherever, the Australian income tax is well on the way to being discretionary for them. Since not everybody has the same capacity or inclination to avoid it, income tax is damned unfair. Further, as we should expect, the high marginal rates and the manifest opportunities for avoidance encourage even more economic distortions than do most taxes. One of the more serious of these is encouragement to invest in untaxed housing rather than assets that produce taxed rewards. This seems unbelievably inefficient, but it is about right in my own case.
Income taxation hits savings both prior to investment and upon the investment's earnings.
This is not smart in a country that has a big and growing savings and balance of payments problem. Mark Latham, the Opposition Education spokesman, proposed to avoid this with an expenditure tax. Although theoretically attractive, no country has one and the implementation problems are daunting. Income tax also taxes the effect of inflation upon the value of bank deposits sometimes causing the least sophisticate investors to suffer negative post-tax real returns. It is an election year and the domestic economy is still strong, therefore, Howard will almost certainly use some of his budget surplus to reduce income tax.