Allegra Spender unveils plan for major tax system overhaul in new white paper

"For someone earning $100,000, which is close to the median full-time wage, that's more than $1,600 back a year. For someone earning $200,000, that's around $4,000 back," said Spender.

The reduction in income taxes for wages and salaries would be funded by reducing the capital gains tax discount, changes to negative gearing, a minimum tax rate for investment income, and changes to superannuation taxes.

Under the proposal, the capital gains tax discount would be reduced from 50 per cent to 30 per cent, which Spender said would still allow them to earn a positive real rate.

Negative gearing would be ring-fenced so that investment losses can only be offset against investment income, not against wages.

"This is pretty standard practice across comparable economies. It ends the perverse incentive that means that property investors can reduce their wage tax while outbidding first home buyers in the property market," said Spender.

The negative gearing changes would be phased in over a period of five to 10 years.

The proposal also includes setting a minimum tax rate of 27.5 cents on investment income where there's no labour income and aligning the earnings thresholds in superannuation more closely with income tax thresholds over time.

The changes to superannuation, she said, would be phased in over a period of over 10 years and would provide a one-off opportunity for those with high balances to reposition their assets.

Spender said the proposal in the white paper has been costed by the Parliamentary Budget Office and is budget neutral.

"Every dollar raised goes back to the Australian people as lower taxes on wages, better rewarding hard work, building prosperity," she said.

Spender emphasised the urgent need for comprehensive tax reform and noted that the system no longer works for younger Australians.

"Young Australians today are more educated and more likely to be working than any previous generation. Their wealth is stagnating. They have more debt. They are having fewer children and spending less money on non essentials than previous generations on of young people, they are starting fewer businesses, and unsurprisingly, many have much less hope for the future," she said.

Home ownership is also declining among younger Australians, she said, with the rate among Australians aged 25 to 35 having dropped nearly 20 percentage points over 40 years.

"In 1980, 15 per cent of home buyers needed financial help from their parents. Now it's over 40 per cent," she said.

Spender gave an example of someone earning $100,000 to demonstrate the inequalities in the system.

"Take $100,000 worth of income. If you earn it in wages like most young Australians do, you'll pay around $23,000 in tax. If you earn it as capital gains on a property you held for more than a year, you'll pay about $7,000 worth of tax. Distribute it through a family trust and split it with a spouse, you'll pay about $13,000 worth of tax. Earn it on $1.7 million of superannuation when you're retired, you'll pay no tax at all.

"Same income but four entirely different tax bills."

Spender acknowledged that while there were good reasons for having different tax rates and concessions, she did not believe Australia currently had the right balance between fairness and prosperity.

"My proposal is a deliberate rebalancing of the tax system to reduce the burden on wage income, to reduce the tax burden when people are younger when they're trying to build their financial security, and rebalancing the system to when people can better afford to pay that tax," she said.