Tax reform – a national challenge.
There are many self-evident things that can be said about tax. It is complex. It is inherently political. It invites a multiplicity of divergent and passionate views, many with a strongly ideological base. At our barbeques, dinner parties and across the tables of local restaurants it invites unmeasured discussion, often in the superlative degree.
In a quite fundamental way, our views on tax say a lot about who we are as individuals. At the same time, our taxation system describes and defines who we are as a nation.
With tax reform back on the Federal Government’s agenda, it is worthwhile considering the many nuances of tax in Australia. Tax is full of tensions that render clear directional paths difficult. It is only by clarifying, rather than obfuscating, these tensions, that we can have a reasonable chance of embracing sensible change.
The Federal Government began its process of reform in March 2015 with an initial 200-page discussion paper entitled, Re: think – tax discussion paper. Its stated aim is “to start a national conversation on tax reform”. To do this, the government sets the scene, as it were, focusing on how revenue is raised, rather than its quantum. The potential for solutions and trade-offs has been deferred to a subsequent green paper, which will be released in the second half of 2015, followed by a white paper, which will be taken to the next federal election.
KPMG is of the view that a meaningful, informed discussion should take place in the community. To this end, we have begun a series of thought leadership pieces on tax reform, the aim being to draw out the tensions in tax and stimulate rational dialogue [see our Tax Reform web page].
Tax reform is hardly a novel concept. There is something inherent in the Australian political and economic environment that has given rise to reviews on taxation, as a prelude and stimulant for change, around every 12 years or so going back almost 100 years. There are two exceptions to this, however, and the current process is one of them. Just 6 years after the Henry review of 2009, the Government has again called for reform.
In fact the Coalition Government views itself as finishing the job that the Henry review started, an opportunity, it says, to design taxes that are “lower, simpler and fairer”. Sensitive issues abound and include: the federal/state relationship (how to solve the vertical fiscal imbalance); the high level of corporate tax (we lag behind many other OECD countries, which ultimately puts pressure on real wages – a little understood consequence); plus the negative effect of ‘bracket creep’ on individual taxes (which highlights the tension between our need for revenue and our notions of fairness).
The Government’s tax white paper does not sit in isolation. It accompanies a series of other reviews, some completed and some not. The most important is the white paper on reform of the Federation which is a parallel process. But there is also the financial system inquiry (the Murray Inquiry) completed on 7 December 2014, which passed to the tax white paper 13 issues to be considered.
The report of the McClure review into Australia’s welfare system released on 25 February 2015 is important as well for its interaction between the tax system and the transfer system.
The release of Re: think, and the ongoing reform process, provide our community with an opportunity to reconsider the inherent tensions in our system and to draw out the many and varied nuances and perspectives. In addition to its thought leadership articles, KPMG will be holding a series of roundtables, and will conduct surveys of clients and others, to elicit a broad range of arguments concerning the desirability and consequences of change.
Our ultimate hope is that the national conversation on tax reform moves beyond individual interests. At best, it will embrace a broader picture that goes to the long-term benefit of Australia. This will allow us to create a rational public interest shield with a platform for sensible change.
Leader, Australian Tax Centre, KPMG