The obvious candidate for reform is the horrendous mess created by trying to define in minute detail what constitutes taxable corporate income and deductible expenditure. Henry raised the possibility of taxing the difference between “cash in” and “cash out” as one simplification route.

The cleaner solution is to abolish company tax altogether and replace it with a simple withholding tax on income paid to share holders in much the same way as already occurs via the dividends imputation system. Tax would be deferred initially on retained earnings, which would become a more important source of capital. Overall, revenue should not fall over time, particularly if private companies had to pass passive investment income from other entities straight through to shareholders.

While Henry's focus on cutting complexity is welcome, it is harder to understand his desire to tilt the playing field even further in favour of investments in paper assets. One difficulty is that every time you narrow the tax base by giving concessions to one source of income — for example, savings — this has to be funded by higher rates on everything else. Despite Henry’s desire to increase work incentives, more concessions for savings mean marginal rates on wages and salaries have to be higher than otherwise necessary. Unfortunately this is what happened with the abolition of all tax on super payouts to wealthy retirees — the cost is paid by those still working for a living.

Although higher marginal rates affect the incentive to do more work, Henry’s answer is that people could cut the total amount of tax they pay by allocating more of their income to a tax advantaged savings account. But why try to alter how individuals prefer to allocate their income between spending and savings? In any event, many low to middle income earners are hard pressed to save more than they already do via compulsory super.

Henry also wants to attract more footloose international capital to Australia. That’s fine, if it goes into productive investment. It’s different matter if, as Henry seems to advocate, further tax concessions are used to attract money into managed funds, including those which offer the sort of exotic financial products that have contributed to the global financial crisis.

Some economists consider one key lesson from the financial crisis is that the tax system should do less — not more — to encourage borrowing that ends up creating asset price bubbles and subsequent collapses. The chief economist for the ANZ bank, Saul Easlake, criticises the way tax breaks for capital gains, and for negatively gearing into shares and property. led to a destructive borrowing binge over the last few years. A former Treasury head, Bernie Fraser, shares Easlake’s view. Fraser says, “A dollar of income is a dollar of income, so it should be taxed at the same rates regardless of how it is earned”.

The government is has left itself in a difficult situation in which Treasury economists are hardly in a position to give independent advice on the merits of a report produced by their boss. Perhaps the government should ask Easlake, and other dissenting voices from the private sector, to give it a second opinion before it embarks on radical tax changes.