Everything from multi-million-dollar public campaigns to human psychology are to blame for Australia's scarred track record on tax reform. Grattan Institute chief executive officer Danielle Wood used one of her final speeches as head of the prominent think tank to outline exactly why most attempts to reform the tax system have failed to get off the ground. Ms Wood will start as the head of the Productivity Commission - a key institution that advises government on micro-economic reform - in a few weeks. She said overhauling the tax system was still possible despite a laundry list of challenges. "First and foremost I don't think we have much choice," she said while delivering the Freebairn Lecture at the University of Melbourne. "Over the coming decade, the gap between our spending needs and our tax system's capacity to meet them without ever higher taxes on employment income will be stretched to breaking point." Vested interests are one reason tax reform is so challenging in Australia, with losers often "concentrated and vocal" and the winners "diffuse and often disengaged". "Some of the biggest public advertising campaigns mounted over the past 15 years by groups other than political parties have been tax-related," Ms Wood said. Examples include the mining industry campaign against the resource super profits tax in 2010. The easy politics of running a scare campaign by the opposition - employed by both major parties across the years - and sensationalist media coverage have also made it hard to touch the tax system. A lack of consensus among experts can also be problematic, as well as human psychology. Swapping stamp duty with land tax is used as an example - while experts overwhelmingly agree it's an efficient switch, paying a large lump sum when buying a home can feel less painful than paying a bill every year. "Tax reform is hard," Ms Wood concluded. "Does this mean we should just throw in the towel? "The answer is clearly no ... tax reform is simply too big an economic prize to be left on the shelf." Ahead of the May budget, the think tank released a "menu of options" to improve the tax system and raise more revenue to support growing demands on the budget. Pruning back stage-three tax cuts, raising the GST and cutting wasteful spending on major defence and transport projects were all floated as options. The Organisation for Economic Co-operation and Development has also urged Australia to look for other ways to raise revenue rather than increasing income tax. Australian Associated Press
