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26 Feb 09 Australia's Future Tax System - Speech by Dr Henry

On 23 February 2009, the Chair of Australia's Future Tax System Review Panel and Secretary to the Treasury, Dr Ken Henry, gave a speech entitled "A tax system for Australia in the global economy" to the Australian Business Tax Reform in Retrospect and Prospect colloquium, held in Sydney, NSW.

In relation to the imputation system, Dr Henry made the following remarks (amongst others):

"A related observation: in a closed economy, a full imputation system addresses tax neutrality between debt and equity - pretty much. But in an open economy model, where foreign shareholders are not entitled to imputation credits and interest income is largely taxed on a residence basis, there is a tax bias favouring debt. Factoring foreign tax systems into the equation muddies this result of course.

So an open economy model affects the way one should think about our company tax arrangements, including dividend imputation.

But I don't want to be interpreted as arguing the case for doing away with imputation. Our system has some distinct advantages. For one thing as imputation credits are only provided for Australian tax paid, Australian multinationals have fewer incentives to shift profits offshore. If ending imputation means an increase in incentives to artificially shift profits offshore or otherwise avoid company tax, the reduction in the company tax base could have ongoing revenue consequences."

For a copy of the speech, go here.

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