Tax overhaul a missed opportunity in competition review, minister says
Minister Allegra Spender has called for an independent national tax reform commission, a national tax summit, and an end to stamp duty to service a “not fit for purpose" tax system.
A parliamentary inquiry into Australia’s declining competition rates failed to address the nation’s “not fit for purpose” tax system, said independent Minister Allegra Spender.
The omission was “unsurprising” given the politically divisive nature of tax policy, she said, however, the issue is too important to be ignored.
“Tax settings can be a critical driver or obstacle for growth in investment, innovation and productivity,” said Spender, embracing a finding by the Productivity Commission that the tax system should be specifically geared towards promoting productivity.
Committee chair, Dr Daniel Mulino MP told Accounting Times the decision was not a political one, but that a comprehensive tax review fell outside of the aims of the review.
“Tax was not the main focus of where we were getting evidence,” said Mulino, adding, “tax could have been its own inquiry”.
The report was intended to build on earlier competition reports – namely, the Hilmer and Harper reviews – neither of which had lengthy sections on tax.
The committee received some evidence on tax reform, however, it “wasn’t a major focus”, he added.
In additional comments attached to the report, Spender revived calls for the establishment of an independent tax reform commission to serve as an independent adviser to Parliament.
A range of stakeholders – including The Tax Institute and EY – have, in the past, called for an independent tax commission to proactively advocate for reform.
The Tax Institute CEO, Scott Treatt, told Accounting Times it maintains this belief granted it will be allowed to operate independently.
“A commission of this nature could ... hold the enduring responsibility for the ongoing maintenance and continuous improvement of our tax system and be self-operative in so far as it is not bound to undertake reviews at the request of government,” explained Treatt.
“Free, proactive and transparent reporting of these reviews and their findings can only benefit the tax system.”
Craig Robson, EY Oceania’s head of tax, said “there is no person or institution in Australia with the sole responsibility for tax reform,” in a 2016 statement.
“Faith is placed in ad hoc reviews that are easily discarded and in transient treasurers or bureaucracies with a long list of other responsibilities.”
The independent minister also suggested the federal government should convene a national taxation summit to “kickstart reform dialogues” across business, unions, governments and so on.
Spender also took aim the anti-competitive effects of stamp duty, recommending the federal government provide financial support for states that elect to transition from stamp duty to land tax.
A range of stakeholders – from the Productivity Commission to the Business Council of Australia, and Brendan Coates of the Grattan Institute – also questioned the economic basis of the tax.
According to Coates, stamp duty is “probably [the] number one [tax holding back economic dynamism] because it is the one affecting at the household level where people choose to live and, therefore, where they can work”.
Stamp duty costs the average metropolitan home buyer five months of take-home income, according to research from the e61 cited by Spender. Among Sydney and Melbourne residents, the costs are equivalent to a six-month salary sacrifice.
Spender said a land tax would be a preferred alternative, given its relative revenue efficiencies. It is, however, a significant source of state government revenues and a transition could cost billions in the near term.
The federal government is not a charity, but neither would the financial support to fund the transitions be a donation.
According to Spender, it would capture a significant share of the higher personal and corporate tax revenues freed up by the transition to a land tax.
“It is appropriate the Commonwealth estimate the financial benefits of the state reforms and offer to temporarily share these proceeds with reforming states to offset the budget impacts of the transition,” she recommended.
Spender said the report made a number of “useful, practical contributions”, particularly in relation to competition but “it does not go far enough”.
Beyond tax reform, Spender’s recommendations considered dynamism reforms in the areas of industrial relations, innovation, climate and government procurement.
