FEDERAL Treasury boss Ken Henry has dashed expectations that his review of the tax system will pave the way for lower tax, declaring that over time Australians will have to pay more.
Addressing a conference in Sydney, Dr Henry said Australia's tax system had to be prepared for the probability that, as the population ages, government revenue needs ''will grow strongly in the longer term''.
''Generally, older people demand a lot more from governments, especially in health and aged care services,'' Dr Henry said.
His comments set the scene for an end to seven successive years of personal income tax cuts, and suggest that much of his review will be focused on strengthening the tax system so it can raise more money.
Dr Henry delivered his report on the tax system to Treasurer Wayne Swan in December. Mr Swan has said he will release the report before the May budget.
While Dr Henry's speech yesterday focused on the need to raise more from taxpayers overall, he said there was a case for cutting tax rates applying to older workers on the ground that they otherwise might not work at at all.
''In theory, marginal tax rates should be lower where there are more people whose participation is most responsive to tax rates,'' he said.
As an example of the extra costs now confronting governments, he said that in the two decades to 1990 Australia's spending on pharmaceuticals remained steady in real terms at $210 per head.
Since then a new wave of ''blockbuster drugs'' had pushed the cost up to $678 per head, with no sign of it slowing.
In a hint that his review canvasses big and potentially unsettling tax changes, Dr Henry warned against ''vested interests'' who he said had a history of ''dressing up'' their objections to change as concerns for exports and jobs.
He cited as an example the furore over the introduction of a tax on gold mining towards the end of the last century.
''Many of you probably wouldn't remember that income from gold mining was fully tax exempt in Australia until 1991,'' Dr Henry said.
''The exemption lasted nearly 70 years, despite its having absolutely no support in tax theory. Even so, its removal was highly controversial.''
He also the cited the controversy over the Hawke government's introduction of a fringe benefits tax in the 1980s, a move he said was based on the ''rather innocuous proposition that a worker should pay tax on his or her remuneration even if it is not labelled wages or salary''.
''Who on earth would consider it sensible that an executive who receives some part of his remuneration in the form of a Porsche and a holiday apartment should not be required to pay tax on that income?''
Dr Henry said he still found the intensity of opposition to ''this rather obvious requirement of tax system fairness and integrity'' hard to believe.
''It seems incredible to me now that the Hawke government was told by both the motor vehicle industry and its own industry department that the FBT would lead to a complete shutdown of domestic production and the loss of hundreds of thousands of jobs.''
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