Treasury, on Tue 7.4.2015, released its Working Paper 2015-01. It aims to complement earlier studies and contribute to a broader discussion about the structure of Australia’s tax system by estimating the welfare cost and identifying the economic incidence of marginal changes to the tax system. The Paper’s estimates of the additional welfare cost of a marginal tax change (ie the marginal excess burden) of major Australian taxes largely align with estimates reported in earlier Australian studies.
Consistent with earlier studies, the Paper says stamp duty on conveyances and the company income tax are the least efficient taxes (ie they have relatively high marginal excess burdens), while the most efficient tax is a hypothetical broad-based land tax. The Paper tests the sensitivity of the ranking of the efficiency of major Australian taxes to a range of assumptions about economic agents and the structure of the Australian economy and finds that the relative marginal excess burden of major Australian taxes is robust to a wide range of model parameters. Finally, the Paper shows that the incidence of major taxes is largely borne by workers through lower real wages caused by lower labour productivity.
[LTN 64, 7/4/15]
A Treasury Working Paper comparing the relative efficiency of different taxes imposed in Australia has found that conveyancing stamp duty and company income taxes are the least efficient taxes.
The paper — Understanding the economy-wide efficiency and incidence of major Australian taxes — is intended to contribute to the broader discussion about the tax system by estimating welfare cost and identifying the economic incidence of marginal changes to the tax system.
The paper states that the incidence of company income tax is largely borne by workers through lower labour productivity, so reducing real wages. Based on the modelling adopted, it suggests that the most efficient tax would be a hypothetical broad-based land tax, and while GST and individual tax are not as efficient, they are more efficient than company income taxes and stamp duties. The paper uses a static representative household general equilibrium model to examine the incidence of efficiency of the various taxes.
[IT 7/4/15]