“I would also prefer less disparity between the top individual rate and the company rate. Because again, by introducing this huge disparity, all you do is push people into corporate structures so that they can take advantage of the lower rate,” Mr Costello said.
The Morrison government brought forward stage two of its tax cut plan in the October federal budget, which increased the threshold for the 19 per cent tax bracket to $45,000 and for the 32.5 per cent bracket to $120,000, but did not speed up plans for stage three. This final stage is scheduled for 2024 and largely affects higher income earners by cutting the tax rate to 30 per cent on income from $45,001 to $200,000. Those earning above $200,000 will be charged a marginal tax rate of 45 per cent.
The stage three cuts have faced criticism from the Greens, Labor, the Grattan Institute and The Australia Institute, who argue the tax system will be less progressive and more unfair. Deloitte modelling shows top income earners contribute a similar share to the overall tax collected under the changes than without them.
Mr Costello warned tinkering with the tax paid by the wealthy always faced fierce opposition within the Senate, which he said would try to “unpick” the cuts and criticise the high dollar value of the reduction for the highest earners. Instead, he said it was more palatable to push reductions for high income earners through in a package of reforms.
“The good thing about a comprehensive tax reform is when you put it all together you can say there’s this benefit for them, but it’s an integrated package there’s these benefits on a payment system for lower income earners, there’s these benefits for business,” Mr Costello said.
“A package-type system enables you to do harder things because you can put them into a package,” he said. “But what a Senate will always try to do is try and pick it [apart]. If you can unpick it and the measures have to go in one by one its much harder to get hard issues through.”
He said the benefits of a “big reno” of the tax system was being able to wrap things into this package that “on their own would not be popular”. “As long as you can keep the package together you’ve got some hope of getting them into effect.”
Mr Costello is the chairman of Nine Entertainment Co, owner of The Sydney Morning Herald/The Age.