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Earlier this week I had the opportunity to speak at a conference run by the University of Canberra: “Tax Reform, Results and Prospects”. From The Tax Institute’s perspective, Australia’s tax system is too big and too important not to be subject to continual public discussion and scrutiny of the type facilitated by events such as this. 

My presentation was entitled: “Tax Reform: Where to now? Back to the Future?”. In it I reiterated our reasoning behind urging the Government to give a sustained commitment to tax reform for the benefit of all Australians. This requires a measured and structured approach to reform, that includes a timeline and a process for advancing priority issues. This must be in place to ensure continued work on tax reform beyond the recent tax forum.

I outlined the history of the Henry Review, including its commissioning over three years ago and its newfound popularity under the minority Government with Rob Oakeshott MP.  I also spoke about the need for leadership on the issue of Commonwealth-State relations, including in the area of State taxes and revenues.  The Commonwealth Government needs to take the reins on this issue and bring the States on board with a unified vision for tax reform in Australia.  State taxes are increasingly irregular, inconsistent, inefficient and an impediment to investment and growth.  The Commonwealth Government must work with the States to ensure their revenues are protected as inefficient state taxes (such as stamp duties) are abolished.

An independent body needs to be established, such that it is solely tasked with examining implementation blueprints for various tax reform options. The work of such a body would feed directly into Government decision-making processes, so that tax reform remains a serious consideration with a clear roadmap for reaching a realistic reform destination.

Is it a case of ‘back to the future’? I say this because of the extremely concerning trend in the last two months of the Government announcing retrospective changes to the tax law, whilst at the same time spruiking its reform credentials. These actions have served to overshadow the positive moves by Government in relation to the Business Tax Reform working group and the trust tax law reform paper.

A fundamental principle of the legislative process is that laws which adversely affect taxpayers should not apply retrospectively except in extremely rare situations, such as addressing significant tax avoidance. Taxpayers enter into transactions on the basis of the law as it is, not the law as it is rewritten after transactions have occurred.  Despite this, we have seen recent changes announced with respect to consolidation rights to future income, Petroleum Resource Rent Tax and transfer pricing, all with retrospective effect.

Actions like these are in nobody’s interests as we strive for a better tax system.

Robert Jeremenko FTIA

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