Editorial - Tax reform back on the agenda

Courtesy of the 2020 Summit recently held in Canberra, tax reform is rightly back on the political agenda. The 2020 Summit proposed a substantial review of the tax system and the creation of a new Federation Commission. The Prime Minister, Kevin Rudd, calls the tax review a ‘root and branch reform of the Australian tax system.’

The proposed tax review would report within two years. This is a realistic time frame to address a holistic review of our tax system, encompassing taxes levied by our three layers of bureaucracy – federal, state and local governments.

A strong recurring item in many of the discussion groups at the 2020 Summit was the flawed nature of Australia’s federal system. The role of the Federation Commission will be to undertake a “clean sheet of paper” review of the roles and responsibilities of federal, state and local governments.

Taxpayers Australia’s pre-budget submission highlighted the need for a reassessment and realignment of allocation of responsibilities between federal and state bureaucracies to improve accountability, efficiency and reduce public sector waste. Both these initiatives can be seen as necessary first steps before the implementation of substantial reform.

Malcolm Turnbull, Shadow Treasurer, had already announced on 26 March that a full review of Australia’s system of taxation needed to be undertaken. The Coalition should therefore receive recognition for putting tax reform back on the political agenda. The Coalition review is scheduled to report its findings later this year, ahead of the Rudd Government’s review.

If the political will is there to advance the reform agenda then it will have greater chance of succeeding. The task is extremely difficult but not impossible. The complex nature of our present tax system makes the self-assessment framework a very onerous obligation on taxpayers.

It is disappointing that both political parties have already made statements on the GST tax rate even before the reviews have started. The GST rate that applies in Australia is the fourth lowest of OECD countries and should at least be considered as an option in order to reduce, or eliminate, a host of state-based inefficient taxes. There is no point in having a review if politicians want predetermined outcomes. If the politicians do not increase the rate of GST they could still increase the revenue collected from GST by removing exemptions that apply, notably food. The OECD comparison of our tax system conducted last year showed that the mix of taxes in Australia was not ideal.

There is no shortage of material on tax reform as it has been studied, debated and compared to other jurisdictions many times over, but genuine reform has eluded us. Constant tinkering and piecemeal changes over many years has created a complex administrative mess that needs comprehensive review. The tax system has also been intertwined with the social welfare system and this needs to figure prominently in the analysis as well.

Whatever the model the tax review develops to restructure our tax system, it will need to command widespread expert and community support while delivering the expected revenue flow and tax policy objectives of equity, efficiency and simplicity. This is a tall order but the process is well overdue and needs to be started. One thing is certain – it will mean interesting times ahead for the tax profession.