A former Treasury boss has savaged Australia’s federal-state tax system. 

Former Treasury boss Ken Henry has criticised Australia's federal-state tax system, saying it “fails every test”, including economic growth and fairness to younger people. 

In a speech to the Taxation Institute of Australia, Henry urged political leaders to implement major tax reforms instead of “mere tinkering”. 

He said that tax reforms implemented by the Howard government in 2000 had been “completely undone” by GST base erosion and income tax bracket creep, leading to decreased living standards, real wages and GDP per person. 

Henry said the government needed to raise an extra $50 billion annually to cover big spending pressures, but Treasurer Jim Chalmers had not yet outlined a “credible” medium-term fiscal strategy to balance the budget. 

To address the situation, Henry suggested taxing consumption, land, natural resources, windfall profits of big companies and carbon emissions, while reducing taxation of labour income, business profits and removing stamp duty.

Henry also criticised the intergenerational inequity inherent in the present tax system, with younger workers burdened with HECS debt, repaying government debt, and dealing with the costs of climate change, while retirees enjoy tax-free capital gains in homes exempt from pension asset tests, refundable franking credits on share portfolios and a mix of government and tax-free private pensions. 

Henry said that the recent debates over superannuation tax concessions, income tax cuts, and multinational taxation of technology companies “don’t scratch the surface” on the conversation the nation must have.

He put forth a proposed tax reform package that includes less reliance on personal income tax, a comprehensive road user charging instead of fuel excise, replacing state property stamp duties with annual land taxes, and replacing GST, payroll tax and insurance taxes with a broad-based business cashflow tax. 

He also suggested a discounted, uniform rate of tax on interest, rent and capital gains, cutting the company tax rate, or replacing it with a new allowance for corporate equity (ACE) system, increasing tax on economic rents or super profits, such as from mining, and implementing an economy-wide price on carbon. Reforms to the taxation of fringe benefits, superannuation and scholarship were also suggested. 

Henry called for less reliance on Commonwealth taxes and more revenue raised from state tax bases, including road user charges as electric vehicle numbers increase.

He believes that people have given up on “big bang” tax reform in favour of “incrementalism” because the politics was perceived to be too difficult, and that pursuing only isolated tax changes gives “a lot of well-armed people only one target to shoot”.  

Henry says political leadership is required to develop a “compelling narrative” to sell to the public.