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Total Tax Review: Major Reform Issues
John Harrison
Economics, Commerce and Industrial Relations Group
Introduction
History and current problems
- The shifting role of tax collection
- Major revenues the Commonwealth collects include :
- Major revenues the States collect include :
- Recent income taxation policy
- Shortcomings of the current tax system
Taxation principles
Choices in tax system design
- Clarity of taxation law
- Complying with taxation law
- Reduction in quantity of law and its obligations
- Community and business acceptance
- Tax Mix-Vertical fiscal imbalance
- Broadening the tax base
- Taxation levels
- Taxation concessions and incentives
- Reducing scope for evasion and avoidance
- International comparisons
- Interrelationship with social welfare
- Other Government policy
- Structure of government
Costs and benefits
Testing the reality
Conclusion
Attachment A-Taxation Revenue Australia
Taxation is a foundation of civilisation but society accepts this collective
responsibility only if it perceives the price to be fair. We are reminded
of this throughout history which has repeatedly evidenced social revolutions
where tax administrations have been considered unjustly oppressive!
In Australia, the community deals with a taxation system administered
by 3 tiers of government which is complex and burdensome, resulting in
high costs of compliance. Notwithstanding that the Tax Law Improvement
Project(1) is doing a worthy job simplifying 5000 pages of Income Tax
legislation, peak bodies in the community are calling for policy change.
The Australian Chamber of Commerce and Industry (ACCI) and the Australian
Council of Social Service (ACOSS) have jointly undertaken to organise
a conference called National Tax Reform Summit - Correcting the Balance.(2)
This conference is to be held in October 1996 and will allow an airing
of community opinions about total taxation reform.
While it is to be expected that the community favours a taxation system
which will promote a fairer Australia, unfortunately the principles and
design of such a taxation system are not easily agreed and accepted. The
Commonwealth's 1985 taxation summit revealed how interest groups could
not reach a common view on these very contentious issues.
Without doubt, taxation reform can require major administrative and
managerial changes affecting all levels of government, the private sector
and the community. There are major cost implications accompanying any
large scale change. Traditionally, taxation policy has proceeded upon
an incremental approach which is easier to implement administratively
and politically, but has resulted over time in a highly unsatisfactory
position. The community (including tax experts) have great problems in
dealing with the income tax legislation. The legislation is very complex.
It has a numbering system which is (at times) not sequential, and can
be very difficult to follow (e.g., provisions like Section 159GZZZA(2)(b)(iii)(B)).
Also, the structure of the Act has become so unwieldy that its original
design has been obscured. All of these elements develop uncertainty which
creates much ill feeling where penalties can be imposed for mistakes in
a voluntary compliance context.
This paper focuses on outlining the many issues which need to be canvassed
in determining the aptness of a total taxation review for all Australians.
As to why we should reform the taxation system, this paper briefly examines:
- The history of taxation and current problems;
- What are the elements of the taxation system which are considered
desirable;
- The design of the taxation system;
- The costs and benefits involved in taxation reform; and
- Testing the reality of tax reform options.
This paper does not attempt to identify the best approach for tax reform,
but after highlighting the issues, concludes that the principles and design
of a taxation system are well worth reviewing. However, the successful
achievement of a total taxation review is not held back so much by economic
and legal difficulties, as by political and social realities. On balance,
the most likely result is some renovation of existing taxes.
The shifting role of tax collection
In Australian history, tax was initially collected under the jurisdiction
of the Colonies.
Under Section 51 of the Federal Constitution, the Commonwealth's powers
were limited to matters of national concern such as defence, foreign affairs,
and currency and coinage. In the early years of Federation, the Commonwealth
collected more revenue than the States through a small number of taxes,
the largest dealing with customs and excise. The States had ceded their
taxing power of customs and excise(3) and came to rely on income tax to
be self sufficient. In respect to taxation (other than customs and excise)
there are concurrent powers for the Commonwealth and the States, although
there is a requirement that the Commonwealth must not impose taxation
so as to discriminate among the States.(4)
The first Federal income tax was not levied until 1916 to finance Australia's
role in World War I. The States continued to levy income taxes up until
World War II when the Commonwealth took sole responsibility for income
taxation in order to fund the war effort. At the time, the States imposed
their income taxes at very different levels. The Commonwealth introduced
legislation in May 1942 which imposed a uniform, high rate of tax and
proposed to reimburse the States for their income tax forgone. This legislation
effectively took the States out of the income taxing field (Australians
could only afford to pay the Commonwealth tax) leaving the Commonwealth
as the sole authority to impose taxes on income. Four State Governments
challenged the validity of Commonwealth's legislation and the Uniform
Tax Case 1942 established priority to the Commonwealth for funds from
income tax. In 1946, the Commonwealth announced it would retain its control
over income tax. The States subsequently withdrew from the income taxing
field in exchange for Commonwealth loans and grants.(5)
Today the Commonwealth collects approximately 80% of all revenues (mainly
from income tax)(6), while the States collect the rest. However, the States
need more finances than they collect and are dependent on supplementation
through Commonwealth grants. These grants average around nearly half of
the revenue received by the States, although the Northern Territory receives
a higher supplementation (approx 75%)(7).
The total taxation system Australians face is very complex. There are
12 major taxes/revenues collected by the Commonwealth and some 7 major
taxes/revenues collected by the States (see list below). For those businesses
which trade in a number of States, there are increased compliance problems
resulting in inefficiencies where State taxing laws are inconsistent.
Major revenues the Commonwealth collects include:
- Income Tax -personal, company, & super
- Child Support
- Medicare Levy
- Fringe Benefits Tax
- Wholesale Sales Tax
- Higher Education Contribution Scheme
- Superannuation Guarantee
- Withholding taxes
- Petroleum Resource Rent Tax
- Customs duty
- Excise duty
- Non tax revenues
Major revenues the States collect include
- Stamp duties
- Payroll Tax
- Licenses/Business Franchise Fees
- Gambling and Betting
- Motor vehicle taxes
- Land Tax
- Financial Institutions Duty / Debits
Attachment A-Taxation Revenue Australia (Australian Bureau of
Statistics) gives further detail of the nature and quantum of taxes involved
in collection. Undertaking a review of the total tax system is a very
complex problem indeed. There are many different taxes concerned which
affect millions of taxpayers and involve billions of dollars.
Recent income taxation policy
Income taxation policy up until the 1970s evolved incrementally. The
character of taxation policy was changed in the late 1970s and early 1980s
by the Fraser Government which concerned itself with curtailing tax avoidance.
Subsequently, the Hawke Government sought to establish a more equitable
and robust taxation system and instituted the 1985 taxation summit. Unfortunately,
the summit resulted in little consensus among the interest groups attending
in choosing tax options for a new taxation structure. The result was to
maintain the income tax regime, make various adjustments to improve fairness,
and increase its base by including taxes such as capital gains and fringe
benefits tax.
Such tax reform was also done at a time when the Federal Government
also sought to bring Australia into a more competitive international trading
environment. This quest for international competitiveness resulted in
major changes such as the floating of the dollar, financial deregulation,
phased reductions in tariffs etc. The Australian Taxation Office (ATO)
engaged in a $1.2 billion modernisation program(8), a microeconomic reform
to create a world class efficient modern tax administration.(9) The ATO
sought to be more responsive in its client service through greater consultation,
increased advice in its taxation rulings program, market segmentation
of its clients, and other related measures. Most recently, it has embarked
on an ambitious and necessary Tax Law Improvement Project to restructure,
renumber and rewrite the income tax legislation.
Shortcomings of the current tax system
Despite the movement to curtail tax avoidance, improve equity, and modernise
the taxation system at the Federal level, there are still many shortcomings
of the total tax system. Some identified criticisms(10) of the current
taxation system include :
- The many taxation laws are not easy to understand. Individuals and
business are overburdened by too many different taxes, each with its
own recording, reporting and payment systems;
- The taxation system is unduly complex and differs from state to state.
It is costly and uncertain and makes compliance difficult for individuals
and business;
- The taxation system is narrowly based and unduly focused on business
inputs and income, thus reducing Australia's international competitiveness;
- The system distorts economic performance through its differential
application to various sectors of the Australian economy;
- The system is inequitable as wealthy income earners are able to adopt
tax-minimisation structures given over-reliance on taxing income; and,
- The system does little to encourage savings.
The principles of taxation should be stated clearly, and should be transparent
to the community. It is essential in a liberal democracy that people understand
how, why and how much they are being taxed. This is easily obscured through
indirect taxation and the complexity associated with a three tier government
taxation system.(11)
The Asprey Committee examined taxation reform in 1975(12). The committee's
terms of reference was to consider the effects of the taxation system
upon the social, economic and business organisation of the community.
The committee translated this objective into 3 smaller objectives, namely
efficiency, fairness, and simplicity.
The Committee viewed that efficiency reflects the economic and
efficient use of the resources of Australia. Fairness reflects
the desirability that there should be a fair distribution of the burden
of taxation. Simplicity reflects that the revenue raising be by
means that are not unduly complex and do not involve the public or the
administration in undue difficulty, inconvenience or expense.
Another two objectives the Asprey Committee saw as important were flexibility
and economic growth. Flexibility of a taxation system was
considered of obvious importance to economic management. The system's
rates of tax needed to be flexible so that revenues can be raised or lowered
in line with economic activity. This was desirable so that government
could respond quickly to changes in economic activity and such action
was politically acceptable given the small change in the rates of tax.
The Committee saw that economic growth should be deliberately
and distinctly pursued in taxation policy. In the context of taxation,
its encouragement is often taken as implying that the overall level of
taxation should be kept lower than it would be otherwise, and that saving
should not be discouraged (in the interests of encouraging greater investment.)
But are there other principles which should be considered? For example,
the Hawke Government's objectives for the 1985 National Taxation
Summit in relation to restructuring and redefining the taxation system
were:
- to promote growth;
- to ensure that the benefits of the growth are fairly shared; and
- to bring lasting relief on personal income tax to the ordinary taxpayers.(13)
The Australian Chamber of Commerce and Industry proposes six tax reform
principles in the context of the 1996 taxation summit deliberations. These
are :
- transparency;
- simplicity;
- low compliance costs;
- equity;
- minimal opportunity for tax avoidance; and
- economic efficiency.(14)
Given the widespread community calls for taxation reform, a review of
the principles of taxation is timely. It is important to agree upon taxation
principles as they provide the framework in the design of a total tax
system for Australia.(15) Striking the right balance of taxation principles
is challenging. It may be easy to create a taxation system which is highly
efficient in terms of its impact upon resource allocation, but will likely
be very unfair because there is no consideration made to account for the
differing income and wealth levels. In the Australian egalitarian society,
traditionally the rich have paid a higher rate of tax compared to the
poor. However the fairer the system is made, the more the tax rules must
address a range of individual circumstances, leading to a greater loss
in simplicity. The taxation principles are interwoven and a balancing
of these principles is fundamental to thorough consideration of the issues
in the design of the total tax system.
In reforming the Australian tax system, Stanford et al propose that
there are two very diverse choices which can be considered.(16) One approach
would be to retain the main features of the present tax system which emphasises
the taxation of personal and corporate income which is supplemented by
indirect taxes. Within that framework various options can be examined
to broaden the tax base so as to improve equity and remove distortions
to improve economic efficiency. This tax reform approach was adopted in
part pursuant to the 1985 taxation summit where the income taxation base
was expanded and changes were introduced to promote efficiency and a fairer
tax system. Such change however came at a cost of greatly increased complexity.
Another approach is based on the assumption that the problems with the
present system are so firmly entrenched that a much more fundamental reform
is required. Adoption of this approach could see almost all of the present
taxes being replaced by new taxes. In particular, the present personal
and corporate income taxes could be replaced by an consumption/expenditure
taxes and/or a cash flow tax.(17) Changing to such a new system is extremely
difficult politically, socially and administratively, but needs to be
considered in light of its potential benefits.
The most likely total tax reform option undertaken probably lies somewhere
between these two choices. In choosing the most appropriate tax design,
the following objectives and factors need to be considered:
Clarity of taxation law
Legislation must clearly reflect the intended policy, must be clearly
understood and able to support legal and judicial interpretation and tax
administration.(18) Clarity is vital for the efficiency of the tax system.
Complying with taxation law
Taxation law should be capable of being enforced from the perspective
of the revenue authorities and complied with by the general tax paying
community.(19) This is particularly so in a system which relies on voluntary
compliance.
Reduction in quantity of law and its obligations
Reduction in the number and size of legislation reduces the number of
demands and inconsistencies which individuals and businesses in particular
must face.(20) All things being equal, the burden of tax remains the same
to the community despite there being lesser numbers of taxes and associated
obligations.
Community and business acceptance
While the burden of taxes may remain the same despite a reduction in
the number of taxes, it remains important for the community to accept
the nature of the tax.. This is evident by the community's frustration
with various taxes such as fringe benefits tax and capital gains tax which
are extremely complex and high in the cost of compliance.(21) The question
arises then, which taxes would be forgone and which taxes would be retained
in the rationalisation process of a total taxation review? How would the
community and particular interest groups be affected by such change in
the nature of taxes?
Tax Mix-Vertical fiscal imbalance
Tax mix basically refers to the combination of taxes according to whether
they are raised directly or indirectly. What is the right tax mix of direct
and indirect taxes and who should collect them? Should governments, whether
Commonwealth, State or local, be responsible for raising all the revenue
required to acquit their spending? Should the same government which has
the power to spend money be required to raise it, or should the Commonwealth
have a role which facilitates fiscal equalisation among the States? (For
example, the Northern Territory's revenue base alone cannot adequately
support its obligations and it relies on greater supplementation (relative
to other States) from the Commonwealth).(22) The Australian Federation
has evolved into a system where State Governments are effectively prevented
from levying income taxes or major consumption taxes.(23) The Commonwealth
raises most of Australia's revenue primarily through direct taxation resulting
in a vertical fiscal imbalance. The imbalance comes about because the
Commonwealth collects more revenue than it needs. This makes the States
dependent on the Commonwealth and encourages inefficiency in public administration,(24)
but should the States be more self sufficient? The disparity in revenue
sharing that is currently evident needs to be addressed by the Commonwealth
and the States.(25)
Broadening the tax base
Should the existing tax base be broadened beyond the Commonwealth tax
reform initiatives of the 1980s? Should the Commonwealth's wholesale based
sales tax system be retained or a tax be introduced to include services,
such as the Goods and Services Tax (GST)? Sales tax is criticised because
it is imposed on business inputs which leads to a tax on tax (where taxable
goods are involved).(26) The taxing of business inputs also impacts on
the export price of goods making them less competitive than rival countries
with a Value Added Tax (VAT). Should Australia persist with these taxes
or join the ranks of 128 countries which operate a VAT?(27) (Note the
exception of the United States which uses a broad retail based sales tax
imposed at the state level.)
With regard to indirect taxes of the States, the States levy an array
of input taxes and a range of taxes on capital transfers. In regard to
capital transfers, there are current difficulties being experienced because
capital transactions are being moved offshore, and the future scenario
appears just as difficult. How will the States cope as this base continues
to shrink? Payroll taxes which the States collect have been highly criticised
by business and Unions. PAYE tax is already paid to the Commonwealth,
why should another tax be paid to the States. Is the State's indirect
tax base too narrow applying in the main to motor vehicles, petroleum,
alcohol and tobacco products?(28) Should the States be given access to
a wider spectrum of consumption tax? Should wealth taxes such as death
and gift duties be reintroduced?
Taxation levels
With each type of tax, it is appropriate to establish the level at which
they are most efficient. But do the taxation levels promote good economic
management? For example, in the income tax rate regime, personal tax rates
are high relative to other OECD countries.(29) Is Australia over reliant
on this form of taxation, and should it be lower? Should the tax rates
be flat or have progressive marginal rates of tax and should there be
a tax free threshold? Should tax be imposed on the individual or should
the family be seen as the appropriate tax unit? What are the effects on
work/leisure choices? Should the tax rates encourage workers to work overtime?
Do they encourage the unemployed to find work?(30) At the corporate level,
how important is it for Australian corporate tax rates to be internationally
competitive? Is Australia over reliant on corporate taxation? Is the corporate
tax rate competitive enough or should it approach the lower levels of
taxation in Asian countries like Hong Kong? Is it sensible to cut corporate
tax rates solely on the basis of competition, when there are other factors
(education, health, technology infrastructure, political stability, etc)
which should be taken into account?(31)
Taxation concessions and incentives
A major feature of the current design of the taxation system is that
it contains numerous concessions and incentives. Treasury refer to these
as tax expenditures. Tax expenditures are those provisions of the
Australian taxation law which effectively tax certain classes of taxpayers
or particular types of activity differently from the chosen benchmark.
These provisions may take the form of tax exemptions, deductions, deferrals,
rebates or special rate relief. The choice of these concessions and incentives
can be particularly important in the government's program of economic
management. Should taxpayers in different circumstances be treated differently,
and what is the appropriate concession or incentive? For example, should
concessions be provided to disadvantaged groups such as the aged, single
parents, country persons etc. Non profits organisations may be registered
as tax exempt, but should clubs benefit from tax exemption when their
business operates substantially on the same footing as an incorporated
business? What tax concessions should business and industries receive?(32)
Accordingly, current tax expenditures which could be reviewed include:
- Negative gearing-should we allow taxpayers to trade off losses
from investment against personal exertion income?
- Industry concessions-small business, mining, primary production,
etc?
- Superannuation-should this investment form receive such a high
level of concessional tax treatment?(33)
- Savings-should these be encouraged more? The impacts
of taxation on incentives have a significant impact on the allocation
of household saving, and in particular, the allocation of household
savings as between housing vs financial saving in general. Generally,
Australians are recognised for over-investing in the housing market.
Taxation laws provide concessions to the family home, real estate and
superannuation, but not to savings deposits. How should such passive
income be treated?(34)
- Capital investment-Should there be a tax regime for all businesses
producing or supporting internationally traded goods and services which
makes it at least as attractive to run and operate a business in Australia
as elsewhere and rewards effort and good business decisions, the making
of profits, and the employment of labour?(35)
Reducing scope for evasion and avoidance
Whatever the nature of the design of the taxation system it is important
that it be designed with measures to minimise evasion and avoidance. Such
measures support the integrity of the system and the community are more
accepting if they believe that it is not open to abuse. There has been
progress in curbing the 'bottom of the harbour' tax avoidance schemes
prevalent in the 1970s. But should more work be done to address the imbalance
in opportunities for tax planning between rich and poor, self employed
and salaried employees? Should legislation be made to address the horizontal
inequity in areas such as international tax planning, income splitting,
preferential fringe benefits and the lower corporate rate.(36) The ATO
has recently launched a controversial project to audit the top 100 wealthy
individuals, many who are declaring taxable incomes of $25 000 or less.
International comparisons
The international competitiveness of our tax system is a key issue in
determining Australia's economic performance. How do the current taxing
arrangements promote investment in and out of Australia. The controlled
foreign corporation legislation which deals with income sheltered entities
resident in tax havens controlled by Australian residents has been criticised
because it is unreasonable in dealing with tax haven investment and Australia
is not capable of setting itself up as international tax police.(37) Do
we need a tax system which facilitates greater investment overseas
particularly in the Asia-Pacific? Do we need a system which encourages
multinational corporations to establish their Asian-Pacific headquarters
in Australia?
Interrelationship with social welfare
Rationalising the Australian taxation and welfare systems is highly
desirable given their close interrelationship. It makes little sense for
the two systems to be working against each other. The choice to provide
either a tax deduction for social welfare programs or provide a cash payment
needs to be addressed concurrently, and that the allocation of resources
end up where they were intended. The Hawke Government's agenda sought
to lower personal and corporate income taxes and increase cash payments
on the basis of need-e.g., family allowances, family income supplements,
Austudy, childcare subsides and government co-contribution to superannuation
accounts.(38) The integration of the tax and welfare system is appropriate
as it helps to avoid poverty traps and better meet needs based on universal
welfare payments.(39)
Other Government policy
Taxation policy has an important role in macroeconomic management and
overlaps with other forms of government policy. Clearly any changes to
taxation policy need to be considered in the light of other forms of policy-for
example, economic and social issues such as research and development in
the industry area, and 'Green issues' like a fuel excise to cut petrol
pollution.
Structure of government
The three levels of government must reach agreement on a process to
overhaul revenue raising systems. Historically, the total taxation system
has evolved in a piecemeal, self-serving approach, and has not been reviewed
to benefit the system as a whole. There is a real underlying structural
problem which needs a comprehensive and integrated way of problem solving
based on true co-operative federalism.(40)
Any reform should take into account what it is financing and outlay
projections will be essential in a total taxation review. Simultaneously,
the benefits of taxation reform and improved efficiencies should be quantified.
A fundamental objective will be to minimise the costs inherent in a taxation
system. The relevant costs include both compliance costs for the community
and administration costs. Such costs and their quantification will depend
on the choice of design of the tax system.
Another important cost involves set-up and other infrastructure costs
associated with developing a new system, in particular the use of new
technology which will also be of enormous assistance in facilitating the
collection of taxation. Given the ATO's 9 year modernisation process (1989-90
to 1997-98) involved over $1.2 billion in costs alone(41), it is safe
to forecast that costs of a total taxation review to the community will
be in the order of billions of dollars in its changeover. Appropriate
controls over the use of information accompanying the use of technology
will also require consideration of privacy issues and fraud.
Beyond the resourcing issues, there is a substantial cost borne by the
community to relearn and adapt to a new taxation system. There will be
teething problems in the implementation of a new system which will need
to be handled well by the tax administration.
On the other side of the balance sheet lie the benefits. Great benefits
will result in a system which is designed to include maintaining maximum
tax revenues, is based on co-operative federalism eliminating duplication
and inefficiencies, requires minimum redistribution of income and supports
economic growth, provides national uniformity, has minimum microeconomic
impact reducing compliance costs, has a lower rate structure which is
inflation proof, minimises the possibilities of avoidance and evasion,
minimises the need for tax expenditures, eliminates taxation of those
in poverty and recognises the interaction of tax and welfare, and supports
savings and foreign investment.
But are these benefits attainable?
Testing the reality
The economic and resourcing issues mentioned above are important because
a total taxation review would not be worth pursuing if the costs far outweighed
the benefits. But these are not the only criteria which should test the
feasibility of implementing a new taxation system.
Of major concern are the legal and Constitutional issues which may limit
reform. The need for a high level of co-operative federalism is significant
where the collection and expenditure activities of the three levels of
government will be affected. Changes required may make it necessary for
a referendum to amend the Constitution so as to streamline the taxing
powers of the Commonwealth and States. Such change could clarify the taxing
powers, based on a consideration of equitably sharing out what the community
is prepared to bear. It could also eliminate the duplication of similar
taxes across levels of government. e.g., payroll Vs PAYE taxes and excise
Vs license fees on tobacco.
But to many observers, the real stumbling blocks to tax reform do not
rest with technical legalities, but with the community's divergence of
opinion on tax reform. It may be argued that the social and political
realities will be the greatest impediments to overall taxation reform.
Taxation is an essential determinant of the standard of living of Australians;
individuals are naturally concerned about becoming winners or losers with
the transfer of resources under any new system. Interest group activism
could be expected to take the lead to resisting changes if there is the
perception that their clients will be worse off. Many consider that the
Australian community is fearful of any large scale taxation reform initiatives.
The lessons of Fightback and the failing of Option C in the 1985 taxation
summit revealed the enormous difficulty of explaining to the community
and interest groups how changes to a taxation system might improve their
standard of living. In the community there will be large changes necessary
at the administrative and managerial levels, and training for both the
private and public sectors will be needed to accommodate new administrations
and the operations of a new taxation system.
All this can be too much for the community to digest and too complex
to understand. Accordingly, an incremental approach may be easier to implement,
although it may not be fully satisfactory in terms of taxation reform
principles. Whatever tax system may be agreed upon, there is a fundamental
requirement for effective education and awareness programs to ensure the
acceptance of the policy changes within the community.
Another key to successful major taxation reform hinges on trust and
co-operation at the inter-governmental level. As in dealing with the community,
co-operation with and among the States will depend upon their perceptions
of being winners or losers. Protection of States' rights will likely come
to the fore. The States have shown in the recent Premiers' Conference
that they are not prepared to shoulder what they consider to be an unacceptable
proportion of the burden of correcting the Commonwealth's underlying budgetary
situation. They thus strongly opposed the Commonwealth Treasurer's proposal
to remove the sales tax exemption enjoyed by them.
Another major challenge for tax reform rests with the political reality
and the assessment of whether new and different taxes are an option in
the prevailing political climate. Taxation reform is most likely to be
successful if adopted from a non partisan stance. The need for this stance
is exemplified by the GST which has at different times been mooted by
both sides of politics and is currently politically sensitive. For comprehensive
taxation reform to be successful, it would seem that a bipartisan stance
at the federal and state levels, backed strongly by broad based community
support, is necessary.
A total taxation review would provide an opportunity to address the
inequalities, inefficiencies and complexities of the current taxation
system. However, social and political uncertainties rather than economic
or legal barriers appear most likely to shape the nature of any reform,
and large scale change appears uncertain, regardless of its possible long
term benefits. Given the demonstrated cautionary approach of political
parties and the general public on tax reform issues in recent years, present
indications suggest that any changes to Australia's taxation system are
most likely to be of an incremental nature. The outlook seems to be one
of refinement rather than major reform, notwithstanding public views expressed
at forums such as the National Tax Reform Summit. However, there may still
be room for practical improvements by thoughtful changing of settings
and by targeted, practically orientated renovation of the existing taxes.
- The Tax Law Improvement Project is a three year project which
has been set up by the Commonwealth Government to restructure, renumber,
and rewrite the Income Tax Assessment Act 1936.
- The objective of the National Tax Reform Summit is to initiate
broad community discussion of options for comprehensive reform of the
Australian tax system. Note that politicians have not been invited.
- Sec 90 of the Constitution provides the Commonwealth with exclusive
power over customs and excise. The High Court has interpreted the meaning
of excise to be any tax on the production and distribution chain of
manufactured goods and this has excluded the States from imposing an
effective sales tax on goods.
- Sec 99 & Sec 51(ii) of the Constitution apply.
- In 1957 the High Court reversed its decision on priority. By this
time, the Commonwealth had such a footing on the income taxing field
that it would have been politically very difficult for the States to
have applied their own income taxes in any significant way.
- Source, Taxation Revenue Australia (Australian Bureau of Statistics),
AGPS, Canberra
- Source, Government Financial Estimates, Australia (Australian
Bureau of Statistics), AGPS, Canberra.
- Commissioner of Taxation, 'Annual Report 1994-95', AGPS, Canberra.
- Ralph Willis, former Treasurer, 'Government's broader economic
agenda', A paper presented at September 1995 ATAX Tax Summit - 'Ten
Years On: A New Agenda'.
- Graeme Samuel 'The high cost of hidden taxes' Opinion in The
Age 21 May 1995.
- Ibid.
- Taxation Review Committee, Full Report, 31 January 1975, AGPS
Canberra.
- Susan Ryan, Executive Director of Association of Superannuation Funds
of Australia Limited 'Reassessing the role of tax in a global economy'
presented at September 1995 ATAX Tax Summit - 'Ten Years On: A New
Agenda'
- Elisabeth Sexton, 'Back From the Dead; GST', The Bulletin,
2 July, 1996.
- John Martin, Executive Director of Australian Chamber of Commerce
and Industry asserts there needs to be more co-operative federalism
where the focus of taxation is on consumption, and moves away from production
(business costs) if Australia is to be internationally competitive and
less inflation prone. Source: A paper titled Continuing tax reform
agenda: A Business Perspective' presented at September 1995 ATAX
Tax Summit - 'Ten Years On: A New Agenda'.
- Jon Stanford, Harvey Andersen and Marilyn Price, 'Some issues
relating to the reform of the Australian Taxation System' Bureau
of Industry Economics, Canberra, July 1984.
- There are various means of introducing new taxes. Expenditure/consumption
taxes include indirect taxes such as the Value Added Tax (VAT) generally
imposed on goods, or a variation called the Goods & Services Tax
(GST) which imposes a tax on goods and services, or the Cash Flow Income
Tax which is a direct expenditure tax on personal income (cash receipts
less savings).
- Prof Robert Deutsch, ATAX, UNSW. 'International Dimensions'
A paper presented at September 1995 ATAX Tax Summit - 'Ten Years On:
A New Agenda'.
- Examples include the Corporations Law Simplification Program and
the Taxation Law Improvement Project are projects working to reduce
the complexity and compliance/administration costs borne by the community
and government in administration of such complex laws.
- Ibid
- Despite the 1995 FBT Compliance Cost Review, at the 1995 ATAX National
Tax Summit, Peter Costello, then Shadow Treasurer, saw that the great
failure of tax policy over the last ten years has been the burden of
complexity and the cost of compliance to the hundreds of thousands of
business and individuals, grappling to keep up with it. Accordingly,
the present Government had in its recent election platform the policy
of simplification and reduction of compliance costs for fringe benefits
tax and capital gains tax.
- Peter Walsh, Former Minister of Finance, The 1985 Summit; Lost
opportunities and future possibilities' A paper presented at September
1995 ATAX Tax Summit - 'Ten Years On: A New Agenda'.
- Dr Neil Warren, Faculty of Economics UNSW, Research Director Tax
Research Foundation - 'Tax in broader economic context', A paper
presented at September 1995 ATAX Tax Summit - 'Ten Years On: A New Agenda'.
- John Nieuwenhuysen, Chief Executive of the Committee for Economic
Development of Australia, The Age, Opinion, June 1996
- Tony Harris, NSW Auditor General 'Flawed State Revenue tax base;
How do we move forward?', A paper presented at September 1995 ATAX
Tax Summit - 'Ten Years On: A New Agenda'.
- David Vos, Coopers & Lybrand, 'Tax base pressure points'
A paper presented at September 1995 ATAX Tax Summit - 'Ten Years On:
A New Agenda'.
- Ibid.
- Ibid.
- Dr Neil Warren, op cit.
- Dr Neil Warren, 'The distributional impact of a change in the
tax mix in Australia', Australian Tax Research Foundation, Research
Study No 6, 1987
- Susan Ryan, op cit.
- For a full account of tax concessions and expenditures, see 'Tax
Expenditures Statement', The Treasury, November 1995, AGPS, Canberra.
- The concession for superannuation was estimated to cost $7.2 billion
in 1994/95. Source: 'Tax Expenditures Statement', ibid.
- Dr Vince Fitzgerald, Executive Director, The Allen Consulting Group,
'Optimising saving and investment', A paper presented at September
1995 ATAX Tax Summit - 'Ten Years On: A New Agenda'.
- John Martin, op cit.
- Professor Jeff Waincymer, Faculty of Law, Deakin University, 'Legal
formalism & tax avoidance' A paper presented at September 1995
ATAX Tax Summit - 'Ten Years On: A New Agenda'.
- Professor Robert Deutsch, op cit.
- Susan Ryan, op cit.
- Dr Neil Warren, 'The distributional impact of a change in the
tax mix in Australia', Australian Tax Research Foundation, Research
Study No 6, 1987.
- John Martin, op cit.
- Commissioner of Taxation Annual Report 1994-95.
5 COMMONWEALTH GOVERNMENT - TAXES. FEES AND FINES BY TYPE
($ million)
1989-90 1990-91 1991-92 1992-93 1993-94 1994-95
1 Taxes on income 64,191 66,501 62,236 63,409 65,516 73,108
11 Income taxes levied on individuals 49,928 50,156 46,830 47,528 50,571 54,635
111 Personal income tax 48,285 48,810 45,601 46,146 48,986 52,742
113 Mining withholding tax 1 2 2 2 2 1
115 Prescribed payments by individuals 1,595 1,250 1,084 1,181 1,335 1,594
119 Other income tax levied on individuals 47 95 143 199 248 297
12 Income taxes levied on enterprises 13,166 15,250 14,502 15,031 13,918 17,413
121 Company income tax (a) 12,651 14,088 13,269 13,406 12,612 15,362
122 Income tax paid by superannuation funds 376 1,053 1,139 1,522 1,191 1,913
124 Prescribed payments by enterprises 139 109 94 103 116 139
13 Income taxes levied on non-residents 1,097 1,095 903 850 1,026 1,060
131 Dividend withholding tax 115 109 50 88 84 108
132 Interest withholding tax 799 790 651 557 467 433
133 Other income tax levied on non-residents 183 196 202 205 476 519
2 Employers' payroll taxes 1,174 1,258 1,343 1,350 1,422 2,749
22 Selective taxes (stevedoring industry charges) 35 51 54 45 40 64
23 Other employers' labour force taxes 1,139 1,207 1,288 1,305 1,382 2,685
231 Fringe benefits tax 1,139 1,207 1,288 1,305 1,377 2,673
233 Superannuation guarantee charge -- -- -- -- 5 13
3 Taxes on property 387 247 15 19 11 8
32 Estate, inheritance and gift duties
33 Taxes on financial and capital transactions 387 247 15 19 11 8
332 Financial institutions' transaction taxes 378 229 3 1
333 Government borrowing guarantee levies 9 18 12 19 10 8
4 Taxes on provision of goods and services 24,620 24,329 22,667 22,882 25,097 27,792
41 General taxes (sales tax) 10,132 9,365 9,113 9,252 10,414 11,624
42 Excises and levies 10,462 11,587 10,204 10,294 11,446 12,679
421 Excise on crude oil and LPG 1,232 1,354 64 116 62 27
422-425 Other Excise Act duties 8,655 9,005 9,417 9,560 10,751 11,973
426 Agricultural production taxes 575 1,228 723 618 633 679
43 Taxes on international trade 4,026 3,377 3,350 3,336 3,231 3,479
431 Customs duties on imports 3,954 3,319 3,299 3,331 3,226 3,474
432 Customs duties on exports 61 54 49 2 1 2
433 Agricultural produce export taxes 11 3 2 3 3 4
44 Taxes on gambling-- -- -- -- 5 9
5 Taxes on use of goods and performance of activities 238 183 238 27 406 451
51 Motor vehicle taxes 21 18 19 21 24 29
53 Other taxes on use of goods etc. 217 166 219 206 382 422
532-533 Broadcast and TV station licences 177 125 135 101 231 269
534 Departure tax 39 38 82 93 112 78
539 Other taxes on use of goods etc n.e.c. 2 3 2 12 39 74
9 Fees and fines 671 891 1,029 926 859 989
91-93 Compulsory fees of which: 663 864 1,014 910 827 967
912 Aviation en route charges 314 409 433 286 237 268
914 Light dues and navigation Act charges 41 42 43 41 44 43
94 Fines 8 27 15 16 32 23
Taxes, fees and fines 91,281 93,410 87,528 88,814 93,309 105,097
(a) Excludes taxes payable by public trading enterprises 133 165 822 831 865 780
6 STATE, TERRITORY AND LOCAL GOVERNMENT TAXES, FEES AND FINES BY
TYPE
($ million)
1989-90 1990-91 1991-92 1992-93 1993-94 1994-95
2 Employers' payroll taxes 5,210 5,802 5,904 5,807 6,023 6,579
Taxes on property 9,605 10,181 10,997 11,580 12,718 12,691
31 Taxes on immovable property 5,367 6,149 6,533 6,698 6,718 6,779
311 Land taxes 1,295 1,602 1,774 1,492 1,389 1,373
312 Municiple rates 3,831 4,267 4,458 4,712 4,857 4,966
313 Metropolitan improvement rates 52 64 75 76 85 92
314 Property owners contribution to fire brigades 92 105 111 119 124 135
319 Taxes on immovable property n.e.c. 97 111 116 300 263 213
32 Estate inheritance and gift duty1 -- -- -- -- --
33 Taxes on financial and capital transactions 4,237 4,032 4,464 4,882 6,000 5,912
331 Stamp duties 3,645 2,926 3,027 3,341 4,165 3,998
332 Financial institutions' taxes 554 1,057 1,388 1,484 1,755 1,831
333 Government borrowing guarantee levies 38 49 49 57 79 83
4 Taxes on provision of goods and services 3,233 3,510 3,751 4,149 4,683 5,178
42 Excises and levies 371 388 436 484 505 532
426 Agricultural production taxes 11 10 12 15 14 13
427 Levies on statutory corporations 360 278 423 469 491 519
44 Taxes on gambling 1,757 1,946 2,018 2,236 2,578 2,958
441 Taxes on government lotteries 448 503 539 517 550 614
442 Taxes on private lotteries 304 328 331 325 323 337
443 Poker machine taxes 278 295 315 502 752 1,015
444 Casino Taxes 78 93 97 115 149 232
445 Race betting taxes 636 645 646 683 703 662
449 Taxes on gambling n.e.c. 10 82 90 94 100 98
45 Taxes on insurance 1,104 1,176 1,298 1,430 1,600 1,688
451 Insurance companies contributions to fire brigades 359 363 382 399 409 443
452 Third party insurance taxes 149 137 141 152 205 218
459 Taxes on insurance n.e.c. 596 676 774 879 986 1,027
5 Taxes on use of goods and performance of activities 4,816 4,998 5,364 6,243 7,173 7,626
51 Motor vehicle taxes 2,401 2,349 2,472 2,781 3,106 3,359
511 Vehicle registration fees and taxes 1,342 1,402 1,606 1,765 1,901 1,972
512 Stamp duty on vehicle registration 728 641 626 750 872 987
513 Drivers' licences 268 251 184 187 240 288
514 Road transport 63 56 55 79 93 111
52 Franchise taxes 2,392 2,620 2,842 3,394 3,999 4,197
521 Gas franchise taxes 11 11 15 15 18 18
522 Petroleum products franchise taxes 1,016 1,061 1,128 1,174 1,346 1,427
523 Tobacco franchise taxes 818 944 1,085 1,575 1,975 2,067
524 Liquour franchise taxes 546 603 615 630 661 685
53 Other taxes on use of goods etc. 23 30 50 68 68 70
9 Fees and fines 1,126 1,109 1,257 1,283 1,359 1,362
91-93 Compulsory fees 740 678 735 758 855 860
94 Fines 386 431 522 525 504 503
Taxes, fees and fines 23,992 25,602 27,275 29,064 31,956 33,436
Source: ABS TAXATION REVENUE 5506.0 1994-95
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