The findings reveal that stamp duties and insurance taxes are particularly detrimental to the economy, even when applied at minimal rates. The researchers concluded that these taxes are fundamentally inefficient and should be completely removed, a sentiment they shared in their article in The Conversation. Insurance duties, which currently contribute approximately 0.3% of Australia’s GDP, generate about 38.5 cents of economic loss for every dollar raised. When these duties were reduced to generate just 0.01% of GDP, the economic loss only slightly declined to 31 cents per dollar raised.
In comparison, the study found that personal income tax and GST displayed greater economic efficiency and continued to perform better relative to their share of GDP increases. The researchers argue that taxes such as stamp duty and insurance duty are inefficient at any level due to their narrow bases and behavioural distortion effects. Specifically, they discourage individuals from obtaining insurance, thereby rendering these taxes ineffective as revenue-generating mechanisms, even on a modest scale.
This research holds significant implications for Australian taxpayers, businesses, and policymakers. The inefficiency of stamp duties and insurance taxes highlights the potential for economic improvement through tax reform. Eliminating these taxes could lead to increased insurance uptake and reduced economic distortion, enhancing overall economic productivity. Such changes could benefit consumers through potentially lower insurance costs and spur economic activity by removing barriers to efficient resource allocation.
These findings are timely as the federal government's economic roundtable approaches, scheduled to take place in Canberra from August 19-21. Tax reform and budget sustainability will be key topics of discussion. The insights from the Victoria University study could influence policymakers as they consider strategies to enhance Australia’s tax system. By focusing on eliminating inefficient taxes, there is an opportunity to create a more equitable and effective tax framework that supports economic growth.
