Learn about the independent tax policy summit which regrouped private industry leaders, federal and state public servants and influential academics.
In the spirit of interprofessional collaboration, the Australian Financial Review organised an independent tax policy summit which regrouped private industry leaders, federal and state public servants and influential academics. Among others, the new treasurer, Scott Morrison spoke about the manner in which tax reform can assist broader economic concerns.
Even before Turnbull’s ascension, tax reform was on the government’s agenda. Accordingly, Turnbull is currently in the process of drafting a white paper. To successfully introduce an effective tax reform, he will need to address those issues that concretely affect Australians. The Tax Reform Summit plays a significant role in determining the federal tax reform’s direction. To understand the issues raised at the Summit, is to get a taste of the policy changes ahead.
Here are the 5 most significant issues discussed at the Summit. These are the issues most likely to underpin the upcoming tax reform and ultimately affect you.
The Goods and Services Tax is the second most significant source of income for the Federal government. However, since its introduction under Howard, it has not raised the anticipated revenue and been quite a volatile source of revenue. As people save more and spend less, GST revenue is lowered, and vice versa.
There are two potential courses of action: to increase GST or to broaden the base of services and goods included. However, to raise the rate may increase financial pressures on households. The summit therefore turned its attention, overall, to broadening the GST base. One option would be to tax fresh produce although it may affect the country’s obesity problem. Another would be to tax private health funds and private education.
Taxing banks was also on the table. Previously banks had warned that the tax would shift away from them and back onto the consumers. Input tax (where only the funds invested are taxed rather than the bank service) may be a solution. However, taxing banks may be one of the fairest options given the wealthiest are those with larger financial transactions.
The core argument against broadening the base is that it may raise equity issues. Such a policy may be introduced with creative compensation options.
2. Lowering the corporate tax – ‘Down, down!’
If tax is part of Turnbull’s broader concern with innovation, corporate tax should be an significant tool. Currently the Australian corporate tax is at 30% compared to a 15% corporate tax in Singapore. Arguably, the dividend imputation system dampens its effect. However, speakers at the Summit seemed to concur to reduce corporate tax.
Lower corporate tax could be implemented with targeted tax concessions for startups or small businesses.
3. Life long superannuation
Tax concession on superannuation is currently capped at an annual rate. The tax summit toyed with the idea of a lifetime limit of $650 000 indexed to inflation. This would allow workers to save more during the years they earnt more. In particular, a lifetime cap could help address the superannuation gender gap in part caused by women taking time off.
It was however acknowledged that fixing a lifetime limit may be difficult and it is unclear how much retirement revenue it would generate.
4. Making housing more accessible
The Summit also turned its attention to the housing crisis. Currently, negative gearing, where investors borrow to invest usually in property, is taxed for the benefit of the investor to encourage rental housing. However, it may be to blame for over-investment and has profited the wealthy. The tax reform may contribute to making housing accessible, for example by removing those taxes in favour of investment housing.
5. What are the motivations for the tax scheme?
Ironically, the Summit did not agree on the ultimate purpose of the tax reform. In broad terms, there was no consensus in favour of wealth creation or wealth distribution.
Kate Carnell, managing director of Rio Tinto, focused primarily on growth and disregarded wealth distribution: ‘if you redistribute wealth you kill the incentive to create it’.
Economist Saul Eslake used the analogy of a swiss cheese to explain how gaps in the income tax for the rich need to be closed. To him, fairness is the stepping stone to an effective tax system.
Scott Morrison, new treasurer and ex-social services minister, seemed to argue for a social market view whereby taxes are used for growth but ultimately and underlyingly in the interest of households. Innovation and the post-mining boom economy were also central to his discourse in line with Turnbull’s agenda. Whether Morrison’s intentions prevail has not yet been ascertained.
Let us know your thoughts on the tax summit by tagging us #lawpath or @lawpath.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.