|
The National Tax Reform Summit: A Summary of Outcomes
John Harrison
Economics, Commerce and Industrial Relations Group
1. The National Tax Reform Summit - Correcting the Balance
The National Tax Reform Summit held at the National Press Club in Canberra
on 4 and 5 October 1996, was jointly organised by the Australian Chamber
of Commerce and Industry (ACCI) and the Australian Council of Social Service
(ACOSS).
Representatives from diverse sectors of the community were invited and
over 200 delegates attended; Parliamentarians and public servants were
not invited.
2. Why is there a Tax Reform Agenda?
Around the world, tax reform is being highlighted to governments as
essential given the increasing demands of global competition.
In Australia, The National Tax Reform Summit was convened to encourage
broad community discussion and increase awareness of the need for fundamental
tax reform in Australia.
3. What did the Tax Reform Summit achieve?
The summit allowed an airing of community views which were quite various
in relation to tax reform. In his opening address to the summit, the President
of ACCI, Mr Graeme Samuel, called on delegates to reconsider traditional
positions and to consider the arguments of others so as to advance the
debate in an informed, reasoned way.
In the time permitting, the summit was not intended to reach a consensus
on a single package of tax reforms, but was seen as a major step forward
in the national taxation debate.
The summit acknowledged that broad-based reform is essential to address
serious deficiencies in the structure of the current tax system, that
such reform must have wide ranging community support, and that such reform
must be designed to ensure the long-term integrity of the tax system.
Of importance, common ground was achieved in identifying a number of
deficiencies in the current tax system and options for reform. Also, seven
principles or criteria for tax reform were agreed.
4. Criteria for tax reform.
The seven agreed criteria for tax reform were considered fundamental
benchmarks when examining tax reform proposals:
1. Equity - meaning that there must be an element of redistribution
of resources between high and low income people, as well as similar tax
burdens for taxpayers with similar means.
2. E conomic Efficiency - meaning that taxation should impact
neutrally on various taxpayer groups and economic sectors, and that commercial
decisions should not be skewed by tax considerations.
3. Adequacy - tax systems should raise sufficient revenue for
public expenditure needs.
4. Simplicity - taxpayers must be able to clearly understand
their obligations.
5. Transparency - taxpayers must understand how and when they
are paying tax, and how much tax they are paying.
6. Cost - a reformed taxation system should strive for a minimisation
of compliance costs.
7. Tax avoidance - there needs to be minimal incentive and potential
for avoidance of taxation.
5. Common Ground on deficiencies of the current taxation system.
The main deficiencies of the present tax system identified included:
1. Non-Neutrality - the system is not neutral. It does not meet
the efficiency or horizontal equity tests because it distorts economic
choices and treats taxpayers with similar means differently according
to the choices made. Choices distorted include the choice between consumption/saving,
between borrowing for investment or using one's own savings, between different
saving and investment vehicles, and between the different consumption
patterns.
2. Inequity - the present system, especially the indirect tax
system at the State level, is very regressive and while the personal tax
system is designed to be progressive, it lends itself to tax avoidance
and evasion and there is a perception that many high income earners bear
a disproportionately small taxation burden.
3. Complexity - The system is very complex and involves unnecessarily
high compliance costs.
4. Inadequacy - Even allowing for further improvements in government
efficiency and sustained national economic growth, the revenue base may
not be able to meet future legitimate demands on government, especially
at the State level.
6. Highly supported options for tax reform
Options considered which met most of the above criteria were:
1. Rationalisation of the Indirect Tax Structure - either through
a broadening of the existing indirect tax base with exemptions for business
inputs, or preferably, though a more uniform, broadly based consumption
tax applying to all goods and services, to replace both the wholesale
sales tax and many of the existing inequitable and distorting State taxes
(such as Financial Institutions Duty, Debits Tax, Payroll Tax, Franchise
Taxes). In this context the Summit expressed particular concern to remove
indirect taxes from exports because they hinder Australia's competitive
edge. There was no detailed discussion of a particular tax rate, but there
was concern that a tax rate of 15% would pose too many problems for adequate
compensation for the needy and those on social security. Throughout the
conference, emphasis was placed on the need to protect those on social
security and those on low wages from any adverse changes.
2. Better Commonwealth / State Tax Sharing Arrangements - to
allow the revenue base of States and local authorities to better match
their spending responsibilities. Reform of the taxation system should
also achieve a better balance of tax revenue between the Commonwealth
and the States. This should be achieved by a fixed and well understood
methodology for the sharing of taxes collected by the Commonwealth.
3. Reduce Compliance Costs - by a determined process of simplification
of legislation, by relieving more taxpayers of the need to lodge returns,
and by replacing many of the existing tax expenditures (concessions),
with direct expenditure initiatives to pursue socially desirable activities.
7. Options raised which received less support.
There were some other options canvassed but these were not supported
by all delegates, because they failed to meet some of the important criteria.
Nonetheless they are worthwhile considering, for example :
1. Strengthen and Develop Asset Taxes - movement to asset base
taxes such as land, rent taxes, death duties, removal of land tax exemption
for high value homes, and broadening of capital gains tax to cover pre
- 1985 assets, goodwill and the principal place of residence beyond a
certain tax free threshold
2. Broaden Income Tax Base - broadening the income tax base as
a means of ensuring adequate support for public service and employment
programs.
3. Tax Rates - a flattening of the income tax schedules and/or
a shift from imposing tax on an individual tax unit to the household family
unit.
4. Transaction taxes - a tax on foreign exchange transactions
(Tobin Tax).
8. Conclusion on Tax Reform Options
It was a common view that to proceed on one front alone through:
(a) reform of indirect taxes, or
(b) reform of income and asset taxes - was not the right way to proceed.
Both tax base broadening strategies should be adopted simultaneously.
9. The future
The summit demonstrated that common sense and goodwill amongst diverse
sectors of society can lead to reasoned, informed and constructive debate
in an area where different points of view exist. ACCI and ACOSS propose
to establish a Tax Reform Consultative Committee to discuss and progress
outstanding issues and options for tax reform and involve a wide range
of interests in this work. This will include participation from a broad
base of the community. The summit concluded that it would be appropriate
to include political leaders and parliamentarians in future tax reform
discussions.
The summit also considered that at some stage there should be a formal
tax inquiry but that process should not begin until further support for
tax reform was mobilised.
Notes :
This research note has been prepared through the author's attendance
at the summit, and draws on summit papers and summary notes provided by
ACCI and ACOSS. Summit papers can be found at the internet address :
http://impactservices.com.au/acci
For further information on tax reform, refer to Current
Issues Brief No 7, 1996-97, Total Tax Review: Major Reform Issues.
|
