Facing a standing committee, the Tax Institute’s senior tax counsel Professor Robert Deutsch welcomed the opportunity to showcase a number of issues in the tax system that impede business investment, touching on a wide range of issues, including tax rates to complex small business concessions.
“First, the incredible and, in our view, unnecessary array of taxes that apply to a range of different tax bases and in respect of different tax years, at both the Commonwealth and state/territory levels, gives rise to complexity and unnecessary additional costs to business that should be avoided,” said Professor Deutsch.
“On the best estimate we have to date, there are some 125 different types of taxes levied in Australia: 99 at the federal level, 25 at the state level and one at local government level. That is an impressive array of taxes, depending on how you interpret the word 'impressive'.”
When prompted by Labor MP Matt Thistlethwaite if it was time for Australia to implement a comprehensive overview of the taxation system, similar to what New Zealand has done, Professor Deutsch acknowledged that it was timely, but expressed cynicism of accomplishing true reform.
“I'm very cynical about the prospects for any genuine reform arising from that. I simply make the point that New Zealand, which you've drawn our attention to, has a very different political system,” said Professor Deutsch.
“Without a Senate they can achieve a lot more in the way of tax reform than can we. I say that quite openly and bluntly because with the way the Senate operates, politically it is really at the whim of the crossbenchers, and that seems to be a position that is going to continue for some time.
“Whilst that is the prevailing position, genuine tax reform, no matter how many reviews you have, is very unlikely to happen.”
The corporate tax rate political football
Pointing to the corporate tax rate cuts, Professor Deutsch said the long, drawn-out process of securing a rate reduction was a prime example of how the political system would not engender tax reform.
“We are now in a position where the corporate tax rate is being reduced but it's going to take, even under the current arrangement, a number of years,” said Professor Deutsch.
“I understand why it's happened, and it's largely been as a result of a compromise that was reached through the Senate.
“If we wanted to go down that path, that should have been the path that we went down immediately. But, of course, it couldn't happen and it's not going to happen immediately. That's fairly clear now. It will take a number of years, but it's created a lot of problems for small and large businesses with changes to the franking rate.”
Professor Deutsch was also quick to point out that in considering tax reform, a focus on merely reducing the corporate tax rate was not sufficient.
“The first is that we're not arguing that a corporate tax cut is a fix for everyone and for all our problems,” he added.
“I think this is part of a much broader jigsaw puzzle that needs to be considered in totality. It's not just a matter of the corporate tax cut.”