In a pioneering study, Ballard, Shoven and Whalley (1985) used a Computable General Equilibrium (CGE) model to estimate the marginal excess burden (MEB) of major US taxes to help identify directions for tax reform that would improve the efficiency of the US tax system. KPMG Econtech (2010) undertook a similar, but more detailed analysis, of the Australian tax system for the Henry Tax Review.

In this paper the lead modeller for the KPMG Econtech study revisits the efficiency of the Australian tax system using the new CGETAX model. Importantly, CGETAX allows for behavioural responses to all of the major Federal, State and Local Government taxes, factors in the recently-released input-output tables for 2012/13, and distinguishes 278 industries. The analysis with the CGETAX model confirms the general directions for tax reform recommended by the Henry Review, the OECD and the IMF. More specifically, the pattern of MEBs supports cutting company tax and abolishing stamp duties on conveyances, and funding this through broadening the tax bases for GST and payroll tax. There are also substantial efficiency improvements from adopting more even taxation of asset income and alcoholic beverages.

Chris Murphy is Visiting Fellow, ANU, and Director, Independent Economics. He specialises in economy-wide modelling. He began his career at the Australian Treasury and subsequently led economy-wide modelling teams at the Office of EPAC, Access Economics, Econtech, KPMG Econtech and Independent Economics. He has developed macro-econometric models of Australia, New Zealand, Singapore, Malaysia and Abu Dhabi for use in macroeconomic policy analysis and forecasting. Chris has also modelled labour market policies towards migration, education and industrial relations. Finally, he has developed a series of Computable General Equilibrium (CGE) models of the Australian economy for assessing the effects of tax reform proposals. These models were used by the Australian Government in the lead up to the introduction of GST, in the Henry Tax Review report, in the Business Tax Working Group report and currently in the Tax White Paper process.