When Will There Be Real Tax Reform
It is a matter of history that the deterioration of the Australian taxation system began shortly after the government of Mr. Robert Hawke took office in 1983. Until that time Australian income tax law had been simple and easy to understand and comply with. But the Treasurer, Mr. Paul Keating, soon began to introduce complex legislation on such matters as fringe benefits, capital gains, income derived abroad, imputation credits and literally hundreds of other matters. The income tax legislation soon doubled in size, and then trebled. Not only was much of the new legislation difficult to understand, but burdens of compliance increased commensurately.
The critical event at this time was that the initiative in tax matters passed from the government to the Australian Taxation Office. This was unfortunate for the future of taxation policy, for the A.T.O. has for many years been left-of-centre, with promotion generally denied to those who are not Australian Labor Party supporters, and has been actively anti-business and anti-wealth-creation. Under Mr. Keating, who was largely inexperienced in taxation matters, control of policy passed to these elements in the A.T.O.
When Mr. Peter Costello became the Treasurer in 1996 there was no essential change in taxation policy. This was left in the hands of radical elements in the A.T.O., and their views were even more acceptable to Mr. Costello than they had been to Mr. Keating. Indeed, in taxation matters Mr. Costello's position has appeared to be consistently to the left of Mr. Keating.
The spate of new tax legislation therefore did not diminish, and its frequency and complexity brought it steadily out of the range of understanding of most lawyers and accountants. Presently there are only a very small number of specialists in large solicitors' or accountants' firms who are familiar with even the main elements of taxation legislation, and probably none who are familiar with it all.
The matter was exacerbated by the introduction of Goods and Services Tax legislation in 2000. The burden upon the business community became even greater; and for many it became insupportable, with ensuing bankruptcies or closures. The enormous cost borne by taxpayers (in terms of both liabilities to new taxes and excessive compliance burdens) has been of little concern to governments or to A.T.O. officials.
In consequence of changes under the auspices of Messrs Keating and Costello the Australian taxation system has deteriorated to the extent that it has become an extremely serious and unnecessary burden. High marginal income tax rates apply, indirect taxes have increased, and, as noted above, the system has become incomprehensible to all but a negligible number of experts, with encrustations upon encrustations of complexity.
What can be done to overcome these disastrous developments?
First, there should be a dismantling of the tax policy section of the A.T.O. and the supporting tax policy section of Treasury. The bureaucrats in these offices have been able to persuade gullible ministers to adopt the multitudinous measures that have had such deplorable consequences. They are ideologically radical, are hostile to the private sector, and will only worsen the existing position if they are allowed to continue. In particular, the more legislation the tax policy bureaucrats produce, and the greater its complexity, the more employment and promotions for themselves. The opportunity for self-advancement at the expense of the taxpayers is too great.
Secondly, there must be a complete reassessment of the Australian taxation system and its replacement by a completely new system. The present system has become impossible to simplify. It must be scrapped. Experience of taxation legislation has shown that the gradual assembly of complex structures based on amendments after amendments cannot be undone. To the contrary, yet further amendments follow further amendments, and the progression is geometric: that is, the greater the quantity of potentially amendable provisions, the greater the number of amendments, and so on and so on.
Who should be appointed to examine new systems? It should not be a person such as Mr. John Ralph, whose recent enquiry was of negative value, and who was unduly influenced by A.T.O. bureaucrats selected by the government to guide him. A future enquiry will have no value unless it is conducted by a person who is completely free from government influence and who also will not be influenced by politically-correct dogmas. The enquiry should be far-reaching, and should extend to all aspects of the Australian taxation system — to direct as well as indirect taxes — and should compare that system with superior foreign systems (including flat-rate income tax systems that prevent bracket creep) and with two per cent expenditure tax systems, and make appropriate recommendations.
A defective taxation system undermines incentives and national prosperity. This has occurred in Australia, and with the current system beyond repair and continually deteriorating, the search for a new system should not be deferred.
National Observer No. 48 - Autumn 2001