$50 billion compliance cost stands in the way of growth, warns tax law expert

Sydney, 16 July 2021: As emerging economic and social implications of the bushfires, floods and the COVID-19 pandemic test the durability of our economy like no crises before them, the ability to recover and grow economically is more important than ever.

Andrew Mills, CTA (Life), Director of Tax Policy and Technical at The Tax Institute and former ATO Second Commissioner, today launched The Tax Institute’s report, the Case for Change, which lays out how significant, holistic change to our tax system is vital in breaking the 20-year period of sluggish growth in Australia.

Andrew says, “12 years ago, Ken Henry estimated that compliance with the tax law costs us an estimated $40 billion each year. Since then, costs have continued to grow, greater complexity has been piled onto the tax system for everyone. The true cost is likely over $50 billion now - over 14 times what it costs to run the ATO. A huge part of that cost is avoidable if we address the systemic issues of our system instead of continuing to tweak around the edges. You can put as many band-aids as you like on a broken limb, but it doesn’t change the fact that it’s broken. We need significant intervention, and we need expertise to undertake the right surgery.”

“The taxation system’s role is to fund our community and help it grow. To build roads and parks, fund public programs, medical and education services and pay pensions. Right now, we’re in danger of it doing the opposite and ending up with a tax system that is an economic drain and a source of distrust between people, businesses and government.”

Andrew Mills shares 5 pitfalls of our current tax system, from the Case for Change

  1. GST could be crucial to revitalising our economy - but it's dead in the water
    “Australia’s GST revenue is already significantly lower than other OECD countries. Complexity in the system means that compliance costs eat up an average 51% of that already low revenue – more than $155 million over 5 years. We can do better.”1
  2. We rely on the exact wrong kind of taxes…
    “The taxes we rely on for 60% of revenue2 are among the most harmful for economic growth: corporate taxes (4th highest reliance globally) and personal income taxes (equal second-highest globally).”
  3. … and fail to explore more efficient options
    “When it comes to economic growth, land taxes are considerably less damaging than more harmful stamp duties. The stamp duty hike and increase in the tax-free threshold for land tax announced in Victoria’s State Budget this year are the opposite of what we would hope to see.”
  4. Tax law is not ‘fair’ anymore and mistrust of the system comes with a hefty bill
    “Contrary to public perception, most multinational corporates ‘not paying tax’ are not dodging the law – they pay exactly what the law requires them to. The problem is, the law hasn’t kept up with what most people think is fair. This is a failing of successive governments to maintain a sustainable tax system.”
  5. Regulators ‘paper over’ complexity, leading to bigger problems
    “Our tax law is now more than 10,000 pages long, covers 125 taxes, with dozens of anti-avoidance measures and countless complex concessions. Ten of those taxes raise 90% of Australia’s tax revenue. We cannot keep tacking on more measures and more inefficient and ineffective taxes and expect to have a working economy in a decades’ time – let alone a thriving one.”

1 Compliance cost of GST: ato.go.au. GST revenue: abs.gov.au

2 OECD, https://www.oecd.org/tax/tax-policy/revenue-statistics-australia.pdf