Australia's Future Tax System

Architecture of Australia's tax and transfer system

Section 11: Complexity and operating costs of the tax‑transfer system

Outline

This section outlines the problem of complexity in the tax‑transfer system. It explores the sources of this complexity and the costs it imposes on the community.

Key points

  • There are no reliable estimates of the complexity or operating costs of the tax‑transfer system but there is a strong sense in the community that they are too high.
  • An excessive level of complexity impedes the ability of taxpayers and transfer recipients to make optimal decisions, diverts resources from more valuable uses, and gives rise to planning opportunities that undermine the fairness of the system. Its impact tends to be greatest on those with the least capacity to deal with it.
  • A certain level of complexity and operating costs is required to implement the tax‑transfer system in a manner that is efficient and equitable. However, at some point, equity or efficiency is likely to be compromised by increasing complexity.
  • Current levels of complexity and operating costs are most likely above that which is optimal for society as a whole. Two important reasons for this are: incremental development of tax‑transfer policy based on partial assessments of the associated benefits and costs; and income maximising behaviour through the tax-transfer system. Broader reform provides an opportunity to take a systemic view of the trade‑offs between simplicity and other policy objectives.