Time to Re:think the tax system?

My Business’ Tax expert Mark Chapman offers his views on the much-hyped Tax discussion paper released today by Treasurer Joe Hockey.

My Business’ Tax expert Mark Chapman offers his views on the much-hyped Tax discussion paper released today by Treasurer Joe Hockey.

It was Sir Humphrey Appleby, in that stirring fly-on-the-wall documentary about British political life, Yes Minister, who once opined, “Never start an inquiry unless you know what it’s findings will be”.

Well, in Melbourne on Monday (March 30, 2015), Treasurer Joe Hockey kick-started the mother of all inquiries, the one that could come to define – or haunt – this government for the remainder of its life: the tax reform White Paper, or ‘Re:think’, as the whole process has now been christened (presumably by someone who understands more about tax than they do about grammar).

Originally intended to kick-off before Christmas but delayed by a few minor local political difficulties – namely a leadership crisis and two down-to-the-wire State elections – the process kicked off in a blaze of publicity, all geared towards emphasising the fact that this is intended to be a “conversation” with the Australian public. There’s a fancy new website (www.bettertax.gov.au) and an expensive looking YouTube video, all thanks to the healthy $650K PR budget which has been attached to the process.

Behind it all however, the big question remains: will Sir Humphrey’s Australian cousins actually listen to our side of the conversation? Or has the outcome of this particular review already been decided upon? Are those of us about to give our views on the shape of the tax system going forward actually wasting our breath? Time will tell… .

In the meantime, those Treasury boffins certainly can’t be faulted for the care and attention they’ve lavished on the centrepiece of stage one of the process, the discussion paper.  A breezy 200-page overview of almost every aspect of the current tax system, the issues it faces and the pros and cons of the potential solutions, the heart of the paper is a list of 66 focussing questions to which the government wants answers.   

Taxpayers and other interested parties have until June 1 to submit their comments to Treasury, via the bettertax website, on as many of those 66 questions as they see fit. In theory, those responses will then be synthesised into a series of policy options which will be presented for further public comment in a Green Paper to be published in the second half of the year. The government’s preferred options will then be showcased in the White Paper in early 2016 and presented to the electorate for a yay or a nay at the 2016 federal election.

Amongst the areas up for review are the various concessions available to small businesses in relation to CGT, treatment of trading stock, depreciation of fixed assets etc. By and large, most small businesses applaud those concessions, but the discussion paper asks whether the complexity of the law in these areas, and the related compliance costs, should actually be traded for a simpler system based around a lower corporate tax rate, possibly even a zero rate for some businesses.

The paper also canvases the possibility of introducing something like an American ‘S-Corporation’, which is a hybrid entity providing all the benefits of limited liability while allowing the flow through of all tax implications to the shareholders, in short a sort of cross between a company and a trust.

The paper also seeks feedback around the current, clunky system for claiming relief for tax losses and flags reform to the system of capital allowances, with the paper suggesting that the current system hinders the level and composition of capital investment by business.

Add to that the big-picture questions around:

  • Whether or not the GST should increase in rate and/or scope (hint: the government thinks it should);
  • Whether our system of superannuation concessions are too generous (the paper suggests they are but the comments of the Treasurer in the run up to the launch would suggest otherwise);
  • Whether the personal tax system needs to be addressed to fix the problem of ‘bracket-creep’; and
  • Whether the dividend imputation system still has a role in an increasingly globalised investment culture and you have a heady mix of potentially combustible elements to deliver to the Australian public at the end of the process.

And that, surely, has to be one of the two big question marks over this process. I’ve already alluded to the first question mark; whether the government has already decided what it wants to do and this whole process is mere window-dressing. 

The second question mark goes to the current political vulnerability of the government. Much as the policy nerds often try to hijack the debate, tax is an inherently political topic which has the potential to cause massive harm to a government’s electability if they are perceived as straying too far from the electorally acceptable. With little political capital left after the car-crash of last year’s Budget, it remains to be seen whether there is actually any political will to push through some of the bigger and more politically dangerous changes, particularly around the GST.

So, welcome to ‘Re:think’. Get your thinking caps on, get your submissions in by June and hang on for what promises to be a very interesting journey. 

MARK CHAPMAN IS A FREELANCE TAX CONSULTANT, WRITER AND LECTURER WHO CAN BE REACHED AT This email address is being protected from spambots. You need JavaScript enabled to view it..">This email address is being protected from spambots. You need JavaScript enabled to view it..

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