The Tax Institute today kicked off the latest, most ambitious, and arguably best attempt in recent times to put much-needed reform of our taxation system on the agenda.
Over the last year or so, they brought together hundreds of Australia’s leading tax professionals, economists, lawyers, academics and others to identify where our tax system works well, where it doesn’t, and options for reform. This has culminated in today’s release of a 287-page discussion paper entitled The Case for Change. And The Tax Institute certainly hasn’t pulled its punches.
Nothing off the table
Unlike government-initiated reviews and other discussion papers on tax reform in recent times, no topic was off the table. Covering personal tax, business tax, GST, superannuation, indirect taxes, state taxes and more, there is certainly much to discuss. The paper’s purpose is not to set out a blueprint for the design of a new tax system, but rather is evidence that we are in dire need of one.
What did the experts say?
Although the purpose of the paper is not to make specific policy recommendations, but rather spark discussion about possible reforms, this mammoth body of expert opinion nonetheless produced a number of clear policy preferences put forward by The Tax Institute. These include:
- Rebalance the tax mix with a shift away from income taxes towards a greater reliance on consumption tax.
- The social security (i.e. transfer) system must play its part in maintaining fairness.
- Single company tax rate of no more than 25%.
- The current design of the taxation of superannuation is far too generous.
- Having said the above, the current deductible contribution cap ($27,500 from 1 July 2021) is inflexible and fails to acknowledge when individuals are best placed to contribute to superannuation.
- The 50% discount rate for capital gains nowadays is too generous.
Whilst there is scope for reasonable minds to differ, there is clearly a broad consensus amongst the many experts involved on a number of fundamental issues.
Options for discussion
The paper also sets out many ideas and options as meritorious of a healthy discussion. These include:
- Establish a non-partisan, independent tax policy and reform commission.
- Rebalance the tax mix by:
- Increasing the GST rate and broaden the base
- Accompanying shielding measures through the transfer system
- Reform income tax.
- Tax trusts like companies, whereby profits can be retained, and distributed to beneficiaries with a tax credit (much like a franked dividend).
- Complete or partial abolition of dividend imputation in conjunction with a lower corporate tax rate.
- Small businesses choosing to calculate their taxable income based on simple cash in, cash out (bar some exceptions like purchasing land or goodwill, but acquiring depreciating assets would be fully deductible). Such businesses could effectively determine their taxable income based on their bank statements.
- More consistent definition of “small business”. (Touted possibilities are group-wide turnover below $20 million, or even $50 million).
- Abolish the Fringe Benefits Tax regime and replace it with a simpler, principles-based law design.
- Optional standard deduction for work-related expenses.
- Full or partial quarantining of negative gearing losses.
- Inheritance tax of, for example, 5% above a threshold of, say, $2.5 million.
- Broad-based property tax, combined with gradual abolition of stamp duties.
- Replace payroll tax with a business turnover tax and/or state-based income tax.
- And many others.
Blink and you might miss it, but this line at the bottom of page 242 is worth reproducing:
“This paper should be read and considered in its entirety. To consider any single measure or option for reform in isolation is contrary to the spirit and fundamental objective of this discussion paper.”
So, there’s to be no singling out any individual proposal, idea or option to put up in isolation for scorning (or championing, for that matter).
What now?
The Tax Institute will likely be using the discussion paper to demonstrate to politicians and policymakers the groundswell of support out there for fundamental tax reform. A good tax system is fundamental to the success of our economy and our future. So, hopefully this marks the beginning of a momentum towards some big thinking in this policy area, which has been sorely lacking for so long.
Whilst this tax reform discussion paper is about how our tax system can be improved, talk to your trusted Nexia advisor about how we can help you and your business with the tax system we currently have.
Article by David Montani2021
