As Richard Denniss likes to the remind us “Economics 101 says we should tax things we want less of and subsidise things we want more of.” Unfortunately, Australia hasn’t learnt this lesson well enough. The current tax system too often encourages behaviour that is detrimental to Australia’s society and economy.

Tax big dumb utes
Utility vehicles (utes) are necessary to a range of occupations but their proliferation – particularly of larger, heavier models – damages the environment and roads and makes roads more dangerous.

Australia’s taxes and regulations actually encourage people to buy these utes. From 2001 to 2021, the number of passenger vehicles grew by half, while the number of light commercial vehicles (a category that overwhelmingly represents utes) doubled.

Essentially every ute is exempt from Luxury Car Tax due to a tax loophole, which encourages people to buy expensive utes instead of expensive smaller cars, including fuel-efficient and electric cars.

This loophole benefits buyers of the most expensive utes, such as Ram and Chevrolet models, but does not affect buyers of cheaper vehicles. Australia Institute analysis estimated this loophole cost $250 million in foregone revenue in 2023, mostly from expensive Ram and Chevrolet vehicles.

Limiting this exemption to vehicles that are for commercial rather than personal use could raise millions while reducing the number of these vehicles on Australian roads.

Other reforms that would raise revenue while increasing road safety and reducing emissions include reforming the Fringe Benefits Tax so that exemptions require proof that vehicles are strictly used for business purposes, and improved pricing mechanisms for road damage and carbon emissions.

Tax plastic packaging
By 2050, the amount of plastic consumed in Australia will more than double. Despite policies aimed at a ‘circular economy’, just 14% of plastic waste is kept out of landfill. Recycling plastic is expensive and hazardous, with little demand for recycled plastics.

Taxing plastic packaging is not a revolutionary thing. It is already being implimented in the European Union. A plastic packaging tax like that in the EU could raise around $1.5bn.

Stop subsidising tax avoidance
Many Australians employ an accountant to do their taxes and can deduct this expense from their tax. However, a very wealthy few spend tens of thousands of dollars to reduce their taxable income and avoid paying tax. In effect, the government is subsidising people avoiding tax. According to the Australian Treasury’s most recent figures, this tax concession cost $1.4 billion in 2021-22 of which about half (49%) flowed to the top 10%.

In 2017, the Labor party proposed limiting the amount that could be claimed for managing tax affairs at $3,000. This reform would allow high-income earners to still use the services of high-priced tax accountants and lawyers to reduce their taxable income, but they would no longer be able to deduct the total cost of doing so. Implementing this policy today would likely raise at least $130 million per annum.