Australia's Treasurer Points To Tax Reform Over The Medium-Term

by Mary Swire, Tax-News.com, Hong Kong

09 November 2009

While in Melbourne recently, Australia’s Treasurer, Wayne Swan, made two speeches; one on the revised economic outlook and the effects of the government’s fiscal strategy, and the other on the country’s future tax reforms, after the publication of the Henry tax review at the end of the year.

In his first speech, to the Australian Industry Group, Swan gave credit to the government’s economic stimulus measures for helping Australia to weather the global recession much better than expected at time of the budget.

Despite the considerable challenges that remain, he said, revised forecasts for the economy are for stronger growth of 1.5% in 2009-10 and 2.75% in 2010-11. These are significant upgrades from the budget forecasts of a contraction of 0.5% in 2009-10 and growth of 2.25% in 2010-11.

“The government,” he continued, “has judged that the planned gradual withdrawal of fiscal stimulus remains appropriate. As you know, our stimulus is already designed to gradually scale back as a private sector recovery takes hold throughout 2010. Its peak impact on growth occurred in the June quarter 2009, and its impact on growth is already moderating.”

“Our stimulus will actually begin to subtract from growth from the March quarter 2010 because of the very fact that it is temporary,” he added.

He reserved more specific comments on taxation for his later speech, to the Economic and Social Outlook Conference, but presaged his remarks to the conference by stating that the Henry review would give Australia “a once in a generation opportunity to achieve comprehensive reform of our taxation system to make it fairer, simpler and more competitive,” but that there would be “some difficult policy choices to make”.

Within his speech to the conference, Swan returned to that theme, observing that: “Reform usually involves difficult choices and trade-offs. For instance, if it's to be revenue neutral, cutting some taxes logically means raising some others.”

“Increasing the efficiency of the tax system may mean some unpopular choices,” he further explained.

“Taxes like stamp duty or insurance duty discourage people from making rational decisions such as moving home to be near a better job or downscaling when they retire. They are obviously inefficient. But abolishing these taxes would also mean other revenue sources are needed for the State and Territories to fund hospitals, schools, public transport and roads.”

The Treasurer also revealed that he looked upon tax reform as a medium-term process. “I expect the report will provide a ten-year plan for reform, with recommendations that are evidence based, and built on sound, best practice tax policy. I don't expect that the Review will contain draft legislation, or anything resembling it.”

“The government will receive the report at the end of this year,” he continued. “We'll consider its recommendations very closely and we'll release the report, along with an initial response, in early 2010. Our response to the Review's recommendations will come in various forms. There may be some things that we can do immediately, or at least start to consult and develop immediately. In saying this, changes to tax take time, and we'll continue to pursue our measured implementation processes.”

While not wanting to pre-empt the results of the review, he did reflect on the unfairness of the present superannuation system.

“Because superannuation contributions are taxed at a flat rate of 15%,” he stated, “the value of concessions on contributions increase as a person earns more income. Less than 2% of taxpayers earn more than AUD180,000 (USD164,000) each year, but they receive a concession worth 31.5% of their contributions. Compare this to an average family with kids and total income of AUD115,000. The primary earner on AUD80,000 or AUD90,000 would receive a concession worth 24.5% of his or her contributions, and the secondary earner would receive a concession as little as 1.5%, if he or she earned under AUD35,000.”

Mr Swan also looked forward to a simpler tax and transfer system, announcing that he found it “astounding” that more than 70% of Australian taxpayers pay someone else to complete their tax return – more than any other country.

“In fact, given today's technology, and the ability to pre-fill forms with data electronically,” he concluded, “I'd like to hear how a person could complete their tax return with just a few clicks of a mouse. We should also try to minimise duplication when collecting information from taxpayers, transfer recipients and third parties, like employers and other businesses.”

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