‘Permanent solutions to long-term problems’: Australia’s need for tax reform

Abdalla said the Institute had very much welcomed the increase in conversation of tax reform at government level, yet made clear that genuine action needed to be taken in multiple key areas to achieve objectives such as increased productivity.

The key areas ripe for reform included fringe benefits tax, corporate tax, capital gains tax, superannuation, goods and services tax, individuals, state taxes and small businesses.

As previously reported by Accountants Daily, The Tax Institute was very much in favour of making the instant asset write-off (IAWO) a permanent feature of the tax system, with an increased threshold to $30,000 and eligibility requirements changed to include businesses with an aggregated annual turnover of less than $50 million.

This recommendation also included increasing the turnover threshold requiring businesses to register for GST and indexing the threshold in line with inflation so that GST compliance was not a disproportionate impediment, as well as simplifying the definition of “small business” for income tax, GST, CGT and other laws.

Within the report, Abdalla addressed GST and suggested a thorough review of the GST regime and consider increasing the rate by at least 2.5 per cent from 10 per cent to 12.5 per cent with a view to future incremental increases to align more closely with the OECD average.

In addition to this, broadening the GST base should also be considered to include certain goods and services currently exempt or otherwise GST-free at a lower rate, or at a single rate.

“It is crucial that any reform to the GST regime forms part of a broader package of reforms to income taxes and the transfer system aimed at reducing the dependency in Australia on personal and corporate income tax, and ensuring lower-income Australians are not disproportionately affected,” Abdalla said.

In terms of state taxes, Abdalla also mentioned within her report that state payroll taxes needed to be harmonised.

“Comprehensively harmonise payroll tax laws, extending to rates, thresholds and other legislative and administrative aspects. To facilitate simpler compliance for businesses operating across Australian jurisdictions.”

“With respect to FBT, a principle-based approach, as recommended by the Henry review, should be adopted, which would reduce the arduous record-keeping requirements and mitigate the excessive compliance costs associated with the current regime.”

Along with these suggestions, the report also put forward its recommendations on CGT, superannuation and individual tax.

Abdalla said above all, comprehensive tax reform at the federal and state levels was well overdue.

“This is necessary to ensure its longevity and effectiveness in meeting current and future demands, while also prompting equity and operating efficiency for all Australians,” she said.

“Isolated and temporary solutions may resolve immediate problems, but they can contribute to increased complexity and higher compliance costs. In the case of temporary measures, ultimately, we are left with the status quo once they cease. We need permanent solutions to long-term problems.”