Federal budgets are not tax reform free zones, although what constitutes genuine “tax reform” may be open to debate – indeed, what such reform is meant to “fix” is also an open question. But it is undeniable that big ticket fundamental tax reforms (think the RATS - Reform of the Australian Tax System - reforms in 1985 – introduction of CGT, FBT, foreign tax credit system, dividend imputation, etc) are not a frequent visitor to federal budgets.
In the past, major tax reforms have been the subject of separate announcements – perhaps federal budgets, with all their necessary revenue and expenditure focus, and the political climate they have to operate in (not to mention the three-year electoral cycle), are no longer the place for big tax reform announcements.
In the run-up to most federal budgets, calls emerge for tax reform to take a prominent place. This year has been no different. Tax, accounting and business bodies all called for various tax reform measures to simplify the tax system and make “meaningful” reform. A pre-budget survey by Pitcher Partners of business owners, for example, found that 60 per cent of those surveyed wanted the tax system to be made simpler, just ahead of balancing the budget.
The Business Council of Australia, in its budget submission, called for lower personal and company tax rates, as well as measures to simplify the tax system.
These days, there never seems to be a “right” time to undertake meaningful tax reform. Reforms of any kind are always a movable feast, but it seems tax reform often falls into the too hard basket. And perhaps in the current (and near recent) political and parliamentary climate, this is somewhat understandable. But the tax system and its legislation continues to lurch and struggle under its own weight – it’s not getting any simpler, nor any shorter, and it seems more people than ever require help with their tax compliance.
That said, not all tax reform necessarily have a significant direct revenue implication. Indeed many called-for reforms seek to reduce compliance costs and simplify the tax law. For example, simplification of Div 7A, the personal services income (PSI) rules, the CGT small business concessions (the Henry Review recommended this) and the FBT system all feature in regular calls for reform. And of course, completing the re-write of the ITAA 1936 into the ITAA 1997 would help considerably with simplification. Australia’s tax law is complex enough without having two assessments acts for taxpayers and their advisers to deal with.
In last year’s budget, the government announced a number of “tax reform” measures as part of what it called its “Ten Year Enterprise Tax Plan” – these included increasing the small business entity turnover threshold, reducing the company tax rate to 25 per cent over 10 years, targeted amendments to Div 7A and increasing the $80,000 tax threshold to $87,000 – see 2016 WTB 18 . A number of these have been legislated.
This year’s budget did not announce any big ticket fundamental tax reforms, although a number of significant tax changes were announced, as this bulletin describes. These include measures designed to help make housing more affordable. Speculation about the possibility of a standard tax deduction for work-related expenses amounted to nothing. That would have qualified as a “big ticket”. In the meantime, calls for tax reform will continue.
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