The FSI committee highlighted 13 issues it believes may adversely affect outcomes in the financial system and should be considered as part of the Tax White Paper process.
Among these is the fact GST is not currently levied on most financial services.
“This may contribute to the financial system being larger than it might otherwise be ... households could be over-consuming financial services compared to what they otherwise would if GST was applied to these services," the report stated.
Conversely, the report indicated the GST may also lead to less businesses consuming advice.
"Because the GST is embedded in prices charged to businesses but not charged explicitly, businesses cannot claim input tax credits and therefore pay a higher price for financial services, which would lead them to consume less financial services than they otherwise would."
The report outlines the FSI's views on the objectives of the overall financial system and the principles that should guide its development.
It discusses the financial system from nine perspectives and makes 28 observations on how the system is currently working. For each of these observations, it sets out a range of options for change, including the option of no change.
In releasing the Interim Report, the chairman of the inquiry, David Murray, highlighted the extent to which the financial crisis has changed the way we think about vulnerabilities and threats to financial stability.
"Given developments and lessons learned since the Wallis Inquiry and, in particular, the events of the financial crisis, it seems to us that we are embarking on a phase when confidence will have to be sustained in light of some new realities in the world."
"Sustaining confidence in our financial system has been central to the work of the inquiry."
The 13 tax issues identified in the report were:
- differentiated tax treatment of savings vehicles
- negative gearing and capital gains tax, dividend imputation
- tax treatment of venture capital limited partnerships
- tax treatment of superannuation funds
- tax treatment of legacy products
- interest withholding tax, the GST
- the research and development tax incentive
- tax treatment of social impact bonds
- tax treatment of managed funds
- tax treatment of offshore banking units
- tax treatment of Islamic financing