I spoke to parliament on both Wednesday and Thursday about the Tax Forum, and also about the challenge of ongoing tax reform to support the kinds of social policies society is increasingly demanding.
Statements – Taxation
12 October 2011
It was my pleasure last week to participate in the Australian government’s tax forum, a forum designed to continue the important conversation about how to build a better taxation system in Australia. This forum, of course, does not sit in isolation. This government commissioned a once in a generation taxation report in 2009. The Henry review reported back with a range of important recommendations which this government is pursuing. In my own submission to the tax forum, I argued that among the core principles for tax reform should be the following: taxes should be shifted from mobile tax bases to immobile tax bases, taxation of savings should be more neutral and sustainable, polluters should internalise the social cost of environmental damage, disincentives to labour force participation should be reduced, and the tax system should be as simple as possible.
The Gillard government is delivering on each of these priorities. We are cutting business investment taxes and introducing a mining tax. We are increasing the compulsory superannuation contribution rate. We are putting in place a carbon price with the historic vote in the House of Representatives today, and we are reforming the fringe benefits tax regime on cars to remove the incentive to drive excess kilometres. We are reducing disincentives to labour force participation by phasing out the dependent spouse tax offset and simplifying the tax system by tripling the tax-free threshold—taking one million people out of the tax filing system—and replacing the ineffective entrepreneurs tax offset with more straightforward measures, such as an improved instant asset write-off.
There was a serious and substantive discussion of tax reform at the forum—not including the sorts of comments that we heard from the member for Bradfield, who claimed that Australia is a heavily taxed nation. That is an odd contribution for two reasons. The first is that the tax take has fallen over recent years. The second is that, even when it was higher than it currently is under the former Howard-Costello government, the then Treasurer, Peter Costello, was reported as saying that Australia was a lightly taxed country, one of the most lightly taxed countries in the OECD. So it is clear that whether or not Australia is a heavily or lightly taxed country for those opposite depends more on which party is in power than actually looking at the hard statistics.
There was a range of issues canvassed at the forum. There was discussion over who bears the corporate income tax. Ken Henry persuasively argued, along with Greg Smith, another member of the Henry review panel, that ultimately the burden of the corporate income tax in a small open economy like Australia’s falls on labour. There was a discussion of the treatment of losses and potentially a shift towards an allowance for corporate equity. A working group that will look into that issue has come out of the forum. There was discussion of federal-state tax reform and many of the inefficiencies caused, particularly in an economy in which we want to encourage workers to move to the most productive industries and regions, and the discouragement to mobility caused by state and territory stamp duty. There was discussion about the challenges in Australia in which people face volatile shocks caused by natural disasters or changes in circumstances and the fact that state and territory insurance taxes discourage people from taking up insurance.
There was also a discussion about the importance of simplifying the personal tax system, an issue I have written on as an ANU professor: arguing that the government should do everything it can to try and ensure that to the largest extent possible we take people out of the system. It should not be the case that three-quarters of Australians require professional help to file their return. The government’s tripling of the tax-free threshold, moving a million people out of the tax-filing system, is critically important. I also commend the decision to fund an independent Tax Studies Institute and would encourage people to donate to the institute.
Finally, I would like to pay particular tribute to the academics who attended the tax forum. Many others who were representing interests were being paid for so doing. That was not the case for the academics and tax experts. I would like to pay particular tribute to Sue Richardson, Saul Eslake, Nicholas Gruen, Harry Clarke, Alan Duncan, John Freebairn, Deborah Cobb-Clark, Chris Evans, Peter Whiteford, Frank Stillwell, Dale Pinto, Ric Simes, Judy Yates, Flavio Menezes, Kerrie Sadiq, Richard Eccleston, Paul Gerrans, Robert Carling, Ross Garnaut, Ian Winter, Bruce Cohen, Graeme Cooper, Richard Highfield, Ann O’Connell, Miranda Stewart and Neil Warren for their participation in the forum.
Tax Laws Amendment (2011 Measures No. 7) Bill 2011
13 October 2011
Last week I had the pleasure of attending the Australian government’s two-day tax forum. When I mentioned to a couple of friends that I had been spending two days talking about tax, they rolled their eyes. To many of us, I think, the tax system is something that is too complicated, too tricky to understand, too involved with interest groups and too detailed. But every now and then we need to step back from the minutiae of the tax system and remind ourselves of the simple maxim that with taxes we build society. I was reminded of that this morning in speaking with Ken Neilson, who I am pleased to say is here in the gallery. Ken was a good friend of my paternal grandfather, Keith Leigh. Keith passed away the year before I was born. Through Ken I have had the privilege of getting a bit of an insight into what my paternal grandfather was like and into the values that drove him—of Methodism, of a fair go and of making sure that Australia was a generous country with a social safety net that befits our affluent society. I was reminded of the same values this morning while attending the Every Australian Counts morning tea in support of a national disability insurance scheme, speaking there with Estelle Baines and her daughter Scarlett about the challenges that children with disabilities, adults with disabilities and their carers face under the current system.
It is important for us all to recognise that we need a strong tax system to fund the social services that Australians demand. At the same time, that tax system should not take in more revenue than it needs to do its job. This year the tax share is expected to be 21.8 per cent of GDP, less than the 23.5 per cent we inherited. That is not a bad thing. Those of us on this side of the House do not strive to increase the tax take for its own sake. Our aim is to keep taxes as low as they need to be to fund the social services that we support.
As part of the Tax Forum there was a broad discussion of how Australia’s tax system can be improved and a broad recognition that it is important to move from mobile tax bases to immobile tax bases. That is why this government is working to bring down the rate on company taxes. We recognise that, in a world of mobile capital, if we have high company tax rates our companies will not get the investment that they need to grow employment and boost wages. That is why we are putting in place a minerals resource rent tax, recognising that, by their very definition, Australia’s minerals cannot travel, they will always stay here, and that Australians should get a fair share for the minerals that are their birthright.
We recognise that taxes can be used to bring about better environmental outcomes. That is why we put in place reforms to put a price on carbon pollution and reforms to change the old fringe benefits tax system, which created perverse incentives to get a bigger car and drive it further. We have recognised that complexity is a major challenge in the tax system. As part of that, we are raising the tax-free threshold, tripling it from $6,000 to $18,200. Phasing down the low-income tax offset is the right thing to do. We recognise, through that, that we should have people filing a tax return as seldom as is absolutely necessary. My constituents, I can assure you, do not enjoy filing their tax returns. They are not alone in that. I have been suffering through my own over this past weekend. Anything we can do to take complexity out of the system and ensure that fewer people have to file is a good thing.
We also use the tax system to implement important social policies, like the Higher Education Contribution Scheme and the arrangements put in place under the Hawke government for the collection of child support obligations. Our tax system is also used to collect compulsory superannuation contributions. In a week in which we have heard those opposite say that people’s eyebrows will fall off when the carbon price comes in, it is important to recognise that many of those opposite said similar things when universal super was put in place by the Keating government in 1992. But of course universal superannuation was a great boon to the dignified retirement of many Australians. Universal superannuation is not something which any party now goes to an election claiming to abolish. It will be the same with putting a price on carbon pollution. Indeed, this government is now committed to raising the universal superannuation contribution rates. We are doing so within a context in which the Australian retirement savings system is recognised to be one of the best in the world. A recent report from the 2011 Melbourne Mercer Global Pension Index rated Australia’s retirement system as being the second best in the world, after only the Netherlands. The Mercer report noted that there is no perfect retirement system, but it said that the Australian system did particularly well, due in large part to universal superannuation. The Mercer report did, though, note that raising the level of mandatory contributions would be an important way of improving Australia’s overall index value. And that is exactly what this government is doing in moving the universal superannuation contribution rate from nine per cent to 12 per cent.
The Tax Laws Amendment (2011 Measures No. 7) Bill 2011 puts in place a number of important amendments. The removal of income tax impediments affecting special disability trusts means that now the trustee of a special disability trust can sell the primary residence of a person with a disability without incurring CGT. As a result, that provides more money to assist in the future care of a family member with a disability.
We are reducing the marginal tax rate of Pacific seasonal workers, recognising as we do that the sensitivity to marginal tax rates is particularly high for low-wage workers. Just as we have sought to reduce effective marginal tax rates by lowering benefit withdrawals, this is a reform in the same spirit. We are dropping the marginal tax rate for participants in the Pacific Seasonal Worker Pilot Scheme from 29 per cent to 15 per cent.
We are putting in place technical amendments regarding the taxation of financial arrangements and pay-as-you-go instalments. There are similarly uncontroversial amendments regarding the commissioner’s discretion to extend the notification time for taxation of financial arrangements and farm management deposits.
We are extending by three months the temporary loss relief for merging superannuation funds. That is being done in recognition of some of the ongoing difficulties certain funds are facing. We are also introducing a variation on penalty notices, in response to an adverse New South Wales Court of Appeal decision in the case of Deputy Commissioner v Soong. Another reform is the improvement in the integrity of public ancillary funds. Finally, we are putting in place reforms to the film tax offset, amending the location offset in such a way as to increase the incentive to invest in films in Australia.
I end where I began with an acknowledgement of Ken Neilson and my late grandfather Keith Leigh, who I believe would be proud of the work this government is doing to put in place a tax system that is efficient, equitable and simple and that raises the revenue we need in order to put in place the social programs that Australians deserve. I commend the bill to the House.
Update: Here’s Saul Eslake’s take on the Tax Forum, with plenty of useful observations.