The Blueprint Institute has just released a report dubbed ‘Bye-Bye Tax Returns’ that includes a tax reform proposal that would see over nine million taxpayers given the option to avoid having to itemise their expenses and rather opt-in for a standardised $3,000 deduction. This would apply to work-related expenses and other personal deductions, meaning taxpayers would no longer have to submit itemised lists of deductions.
ATO data indicates that $3,000 is the average personal tax deduction. The Institute’s report suggests that establishing such a standard deduction would help save money for both the government and taxpayers, and result in making the tax system more progressive.
For many taxpayers, a key challenge at tax time involves accounting for their expenses. Whereas salary income details may be pre-filled by the ATO, taxpayers must assemble all their receipts for the year to hand over to their tax accountants.
The proposed deduction would have a ripple effect that includes saving Australians an estimated $750 million in legal and accounting fees. The report also indicates that 80% of Australians would benefit from a tax cut of between $400-$1,000 and eliminate as much as 7-9 million tax returns a year.
Having to comply with current tax laws costs Australians about $5 billion a year. An estimated 70% of taxpayers engage the services of an accountant to prepare their tax returns, a rate that is higher than much of the rest of the world.
While it might seem adopting this proposal would lead to less work for tax professionals given the $750 million dent, some experts do not agree. Elinor Kasapidis, a senior manager of tax policy at CPA Australia affirms that the tax system remains quite complex and that even with a standard deduction, many Australians had multiple income streams that would require the services of tax agents.
Chris Evans, a tax professor at the University of New South Wales, seems to also concur. He said that most taxpayers would prefer to retain control over itemising their deductions, especially where they suspect they qualify for more than $3,000 in deductions. He said such reform was unlikely to mitigate compliance costs as taxpayers would still be inclined to have calculations done.
Steven Hamilton, the chief economist at Blueprint Institute, however, points out that this move would be of benefit in stimulating more consumer spending. He said lower income Australians would be the biggest beneficiaries as they tended to have lower deductions. The report also indicates that taxpayers would save between 10-15 hours on preparing their returns that could be better redirected towards productive tasks. This would mean more economic activity, helping to support the labour market recovery.