Nick Alexander, a former UN and Lowy Institute intern, is a University of Sydney Juris Doctor candidate.

Between the mining tax, carbon tax, and planned changes to superannuation taxes, there's been no shortage of tax-related proposals from Australia's sitting Labor government. That being said, in light of the substantial deficit recently unveiled in the 2013 budget, policymakers might be wise to consider a pair of taxes that have garnered little commentary to date, and which could generate significant revenue: expatriation and emigration taxes on Australians abroad.

As the son of a former Aussie diplomat (my family may not thank me for this post), I always found it interesting that our American counterparts were subject to a worldwide income tax contingent only upon maintaining their citizenship, as opposed to residency.

An American living overseas with a worldwide income of over $9750 is required to file US tax returns. To minimise 'double taxation', Americans may qualify to exclude from their assessable income up to $95,100 of their foreign earnings as well as certain foreign housing amounts. To discourage avoidance, the US government has negotiated tax treaties with over 40 countries under which American and foreign tax agencies exchange tax data on their residents. Additionally, America imposes yet another tax on those who choose to renounce US citizenship. This renunciation or emigration tax applies to all US citizens who have been residents of America for eight of the last 15 years, whether or not they are emigrating to avoid tax.

With more Australians choosing to live overseas than ever before, the question arises: if Australia introduced similar taxes, what is the potential price of citizenship for Aussies abroad?

In 2003, the Australian Bureau of Statistics reported that approximately 290,000 Australian expatriates over the age of 15 were living in the OECD alone. It is therefore reasonable to assume that approximately 300,000 Australian expatriates presently live in the OECD, and that at least half of this number are taxable income-earners (as opposed to retirees or others subject to substantial offsets). Using NSW's 2010 average salary of $50,328, and operating on the presumption that up to 75% of this amount might be excluded as non-taxable foreign earnings, the average expat's annual income tax might amount to as much as $987.30 per expatriate. This leads to an estimate of approximately $148,095,000 in annual government revenue from a worldwide income tax levied on Australian expatriates based in the OECD alone.

Taxation represents one of the clearest manifestations of the citizen's social contract with their government. Put simply, the tax-paying citizen has consented, either explicitly or tacitly, to surrender some freedom in submission to the authority of the ruler in exchange for the ruler's protection of their remaining rights. While overseas residence certainly complicates things by subjecting the Australian citizen to two different 'rulers' and accompanying sets of obligations, this is not a sufficient reason to negate the levying of taxes.

The Australian expatriate does rely on the protection of the government in the form of its overseas consular, diplomatic, and defence activities. Moreover, many Australian expatriates were raised at home, benefiting from the public services that contributed to their present positions in international business, non-profit organisations, or government.

Most significantly, neglecting to tax the income of expatriates assigns a heavier tax burden on those who remain at home. It is hardly fair for the average Aussie resident to foot the bill that provides expatriates with their overseas protections.

There are risks to taxing our citizens abroad. Several articles have appeared in the international press quoting (often high-flying) Americans who have chosen to renounce their citizenship (think Tina Turner) in response to 'double taxation'. It is certainly not in the interests of the Australian government to encourage similar 'nation ditching' by its overseas citizens.

The question arises whether Australian policymakers can design and implement a system that strikes the right balance: ensuring overseas citizens are subject to a worldwide income and emigration taxes without facing excessively onerous double taxation. This would involve skilfully framed amendments to the Australian tax code requiring citizens to report their financial accounts held overseas to the Australian Tax Office, as well as government vigilance in curbing double taxation through tax treaties.

Photo by Flickr user SimonQ.