- Australia’s tax base needs fundamental reform and government services require attention to achieve budget sustainability.
- A key Budget focus should be to reduce the black economy so everyone is ‘pulling their weight’.
- Digitalisation has the potential to improve government services, reduce red tape and drive efficiency gains.
The need for fundamental tax reform will not go away – even if politically, it seems too hard. Our corporate tax and personal income tax settings are seen as uncompetitive in a world where other nations are lowering their rates.
Technological change has enabled greater globalisation and facilitated new business models, which are placing pressure on traditional tax collection mechanisms. Intergenerational factors also remain a concern from both a spending and tax collection perspective. These trends support realigning Australia’s tax base.
Chartered Accountants ANZ supports the government’s view that the corporate rate needs to be reduced. However, this should be accompanied by a refocusing of the tax base. Chartered Accountants ANZ has consistently advocated for the widening the GST base and rate and has commissioned tax reform modelling that demonstrates how a tax mix switch can be undertaken fairly and affordably with appropriate compensation.
(Photograph: Prime Minister Malcolm Turnbull, right, and Treasurer Scott Morrison in Parliament House working on the Budget. Andrew Meares / Fairfax)
Related: Pre-budget submission CA ANZ states its case
CA ANZ is advocating on behalf of membership with a pre-budget submission to the Federal Government
We have also consistently advocated reducing personal income tax rates so there is less incentive to incorporate, or create complicated structures, to minimise personal tax. Another medium- to long-term measure Australia needs to consider is the worldwide trend of using environmental taxes as new sources of revenue in a revenue neutral way.
A more immediate source of potential revenue is ensuring that everyone ‘pitches in’. Our concern is that Australians have been encouraged to believe that extra tax can always be extracted from ‘someone else’. The reality is that a sustainable revenue base requires everyone to contribute to support community services. This means changing entrenched community attitudes such as:
- over-claiming work-related income tax deductions is ‘alright’
- paying cash to receive cheaper goods and services helps ‘battlers’
Black Economy Taskforce
The 2018–19 Federal Budget provides a unique opportunity to engage with the community on important issues as for the first time the government has detailed tax gap research on individual taxpayers, small businesses, privately owned groups and the black economy at its disposal. The government also has the final report of the Black Economy Taskforce, which is yet to be publicly released.
The black economy should be a key Budget focus. The Black Economy Taskforce’s interim report notes that: “Operating in the black economy gives an unfair competitive advantage to businesses and workers and distorts economic activity. Those who meet their tax and other regulatory obligations are directly penalised. From an economic perspective, a dual tax and regulatory system (one legitimate, the other ‘black’) takes resources away from their most productive uses.”
The interim report contains a number of valuable ideas that could be announced in the Budget, including:
- the hardwiring of government
- the government leading by example by requiring suppliers to hold a ‘tax clearance certificate’
Hardwiring of government is shorthand for reducing multiple, overlapping, duplicative and cross-jurisdictional regulatory regimes and sharing data between government entities. The interim report recommends that Australia develop a robust real-time business identification regime and verification system to reduce red tape, generate valuable data for government and business and improve the delivery of government services. Chartered Accountants ANZ strongly agrees.
Businesses, consumers and government at all levels could potentially reap significant administrative savings from such initiatives. They could also level the playing field for businesses that are doing the right thing by making it easier and more efficient to enforce laws regarding phoenix operators, money laundering and existing federal and state or territory taxation and other laws.
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Using the government procurement process to drive behavioural change could have an enormous impact on industries most affected by the black economy, such as building and construction, information technology consulting, building maintenance (cleaners and security) and catering.
The concept of a ‘good’ taxpayer is used in other countries and broadly requires a taxpayer to have a good compliance record, with all payments (other than those relating to disputes) being up to date.
Chartered Accountants ANZ therefore calls on the government to use the Budget as a platform to ‘talk straight’ to the Australian people about the economic and social risks ahead for our Commonwealth, using Treasury modelling and input from other trusted sources. Research about what a sustainable tax framework looks like should be released not as a policy document, but to encourage informed debate, particularly in view of the looming federal election.
We also call upon the government to embrace New Zealand’s Generic Tax Policy Process. This would require all proposed tax measures to pass through the five distinct phases of that policy process. There should also be greater transparency around the policy-setting process, with the public release of Officials’ Papers (as occurs in New Zealand).
Related: World Congress of Accountants
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