Every year, the Federal Treasurer invites all citizens, including associations, to submit their ideas on what changes the Government should consider in its upcoming Budget. Due to its singular focus on its desire to achieve a Budget surplus, the Government has shifted its priorities away from engaging in much-needed tax reform.
The IPA’s pre-Budget submission reminds policy-makers that the job of mapping out a long-term tax reform agenda remains. The Henry Review has provided us with a blueprint for where our tax system should be heading. Unfortunately, we have not progressed the ideas contained in this review into reform strategies that can be implemented over time to support Australia’s enviable growth record.
Australia faces many looming challenges, such as an ageing population and ever-increasing government expenditures. When the mining boom begins to falter, our structural deficits will reappear, demonstrating the need to future-proof our tax base to support such demands. Without such reform, we will end up like a lot of countries around the world facing a so-called fiscal cliff. Australia is in need of a sustainable tax system that supports growth while meeting current and future spending needs.
One disturbing trend that has featured in many of the discussion papers on discrete tax reforms lately is the requirement for a revenue-neutral outcome as part of the terms of reference for each review. Already, one major review – by the Business Tax Working Group, looking at ways to fund a company tax cut – has fallen victim to this restrictive condition. The group was unable to make recommendations.
Discrete reviews, requiring each reform to be looked at in isolation, with an overall revenue-neutral outcome as a prerequisite, will miss benefits available from wider tax reform opportunities. Reviews under way, such as the Division 7A and trust rewrite and the tax concessions for the not-for-profit sector, all fall into this revenue-neutral category. The revenue-neutral outcome dictated in the terms of reference for these reviews severely impacts the quality of the consultation process and its outcomes. Most of the above reviews will be hamstrung by narrowly defined terms of reference and could easily meet the same fate as the company tax reduction review because of this.
