You suggested that the tax system be used as some sort of policy instrument.
Tax the middle more, you cry. Your only discernible reason is that they currently are tax neutral. A statistic you got from one of Joe Hockey's sound bites, yeah? A statistic used by morons like Donut Joe to create the perception that the rich are doing their bit and it's the bludgers in the middle and on low incomes that are not doing their bit.
To fix that grave injustice, you say 'tax the middle more', how would you suggest the government do this? Raise the marginal tax rates at the middle income level? Lower the thresholds for rebates? Something else? ( I simply pointed out that Mr Henry suggests NOT using the tax system as a policy instrument, unless it is a last resort. Why would he make such a recommendation? If you had any understanding of the tax system you would understand why!)
In short, your suggestion is just plain stupid and if you really have had 20 years experience in tax then the reasons would be obvious.
Wow. Tax policy IS a policy instrument and every government has one.
Henry's review was the result of a view that tax policy needed to change so that inefficiencies in the system that are counter productive be eliminated as much as possible and that going forward future policy decisions had some sort of tax philosophy driving them rather than short termism. That said, any progressive tax system is driven by some form of policy. The progressive rates are arbitrary and set in line with that policy.
Here is a quote from Peter Costello in an interview with Kerry O'Brien in 2007:
"....and the point that I'm making is that they haven't been because those tax cuts have been fully funded, and after they've been done the Government has still been in surplus. So, they wouldn't have been better off if taxes hadn't been cut. Cutting taxes has actually been a way of delivering benefits to families, particularly low-income families and bear this in mind - now, under the changes of this government, something like 60 per cent of Australian families are paying no net tax. That is, their family tax benefits are outweighing their tax liabilities and that's something that's actually really helped Australian "
http://www.abc.net.au/7.30/content/2007/s2000192.htm
The key aspects of this were that the cuts were funded and we were in surplus. We threw money around because we could. We now have falling revenue and rising costs. So the largesse needs to be unwound.
Now throwing that money around did increase disposable income which did fuel increases in wealth caused by rapidly increasing house prices. And people have gotten used to no net tax after almost a decade of it. But it's unsustainable.
Henry recommended simplifying the entire system by simplifying the marginal rates and removing much of transfer payments. But his changes need to be viewed in totality and that's a huge task given their breadth.
I agree that he believed much of the complexity has arisen as a result of short term policy decisions but that includes the ones made by Howard & Costello that are a part of the problem now I.e the 60% making no net contribution.
What this government have done is made accessing some of the transfer payments harder, over time by fixing hard thresholds and by lowering thresholds or, in some cases applying thresholds for the first time. Most of this has little effect until 2015/16 and beyond. And they've still got caned for attacking people's living standards etc etc .. Imagine if they reversed the tax cuts of prior years or adopted Henry's rates and took $15 -$20 a week off people on $60k.
The problem as I see it is we can't actually have that % of households not paying any net tax in a system so dependent on income tax (almost 40% of revenues). So we either drag people back into being net payers or we find alternate substantive revenue streams (like a higher rate GST). Both cost the bottom and the middle.
Or we could just slash and burn spending which leads to mass reductions in transfer payments - which has the same effect.
I'm happy that we take Henry's advice and choose a tax system that's as efficient as it can be and avoids counter productive aspects but it still has to raise sufficient revenue ...