Australia’s future tax system

Bernard Pulle, Economics Section

Potential reform as a result of the Henry Taxation Review

The Australia’s Future Tax System Review (the Review) was established by the Rudd Government in 2008. The Review handed down its report (the Report) in December 2009, and it was made public on 2 May 2010. This article deals generally with how recommendations in this Report may be implemented by the Labor minority Government in the 43rd Parliament, having regard to the reactions of the Australian Labor Party (ALP), the Coalition, the Greens and the Independent members to the recommendations.

As stated in the Report’s preface, the Review took a long-term perspective and intended the Report to be a guide for reform of the tax and transfer system in Australia to meet the challenges from the economic, social and environmental changes envisaged over the next 40 years. The 138 recommendations made in the report are therefore intended to be viewed in the medium to long-term perspective and not in the short-term context of a three-year Parliament.

An overview of the Australian Labor Party proposals for tax reform

The Rudd Government’s initial response was confined to reform of resource, company and small business taxation as well as superannuation. The response also indicated that a number of other areas considered by the Review, especially making tax time simpler, improving incentives to save and improving governance and transparency of the tax system, would receive attention in the short term.

The initial response was accompanied by a list of 19 recommendations from the Report which the Rudd Government stated they would not implement. This list included removing the Medicare levy, introducing a bequests tax, and abolishing the luxury car tax. The Rudd Government indicated that the other recommendations in the Report were not part of government policy and would be the subject of mature debate in the coming years.

Subsequently, the Gillard Government after negotiations with the mining industry announced that it would scale back the minerals resource rent tax from 40 per cent recommended in the Report to 30 per cent. In consequence, the promised staggered reduction of the company tax rate to 28 per cent for all companies was scaled back to a reduced company tax rate of 29 per cent from 2013–14 with no further reduction under current fiscal conditions. Small companies would benefit from this reduced company tax rate from 2012–13.

Brief overview of the Coalition’s proposals for tax reform

The Coalition’s Real Action Plan for Lower, Fairer and Simpler Taxes (Coalition Tax Policy) promised to release all the costings, modelling and other data underlying the Review’s recommendations. This information would be the basis for a fully transparent and informed public discussion. The Coalition also promised to cancel the Minerals Resource Rent Tax and to reduce company tax to 28.5 per cent from 1 July 2013. However, the Coalition’s revised Paid Parental Leave Policy was to be funded by a levy of 1.5 per cent levy on companies with a turnover exceeding $5 million.

The Coalition Tax Policy document included a list of 25 recommendations which the Coalition would not support from the Review. Eighteen of these were the same as the ALP’s list. However, the Coalition policy does not rule out indexing fuel tax to the CPI. The additional recommendations ruled out by the Coalition included new taxes on business activity, scrapping the private health insurance rebate, means testing the Child Care Rebate, and new taxes on Australians driving to work.

Significant aspects of the Greens’ tax policy announcements

The tax policies put forward by the Australian Greens include removing tax breaks for high income earners, increasing the top marginal tax rate to 50 per cent for incomes of $1 million or over, increasing the company tax rate to 33 per cent, introducing an estate tax on families with assets of $5 million, removing concessional arrangements for Capital Gains Tax, and abolishing the Private Health Insurance Rebate.

Under the agreement between the Greens and the ALP, the Greens have won the right to be part of the budget process in the minority government, with the Greens Treasury spokesperson and Greens Members of Parliament receiving economic and financial briefings from the Treasurer and the Minister for Finance.

Significant positions on tax policy taken by the independent Members

Bob Katter MP–Member for Kennedy; (IND, QLD)

Katter’s twenty point wish list provides for ‘No mining tax’ and the removal of the tax on Australian-produced bio-fuels and the introduction of a statutory 10 per cent bio-fuel (ethanol) content in all petrol rising to 22 per cent (as in Brazil).

Robert Oakeshott MP–Member for Lyne; (IND, NSW)

Oakeshott has indicated his support for the Review recommendation for a 40 per cent resource super profits tax. He has also requested the next government to seriously pursue tax reform, including a 25 per cent corporate tax rate.

Andrew Wilkie MP–Member for Denison (IND, TAS)

Under the agreement between Mr Wilkie and the Prime Minister, Mr Wilkie will be able to have input to the budget process as well as the development of tax policy with direct access to the Prime Minister on a regular basis as well as to the Treasurer, the Minister for Finance, and the Secretaries of the Treasury and the Department of Finance and Deregulation.

Tony Windsor MP–Member for New England (IND, NSW)

In a media release on 3 May 2010, Mr. Windsor expressed the view that the Government’s response to the Henry Tax Review, although slow, was welcome.

Concluding comments

Following the agreement with the two independents, Mr Oakeshott and Mr Windsor on 7 September 2010, the Prime Minister has committed the Labor minority Government to convening a public forum of experts on taxation before 30 June 2011 to discuss the Henry Review and its economic and social effects, in order to facilitate a debate on tax reform in the Australian Parliament.

Library publications and key documents

K Henry, J Harmer, J Piggott, H Ridout and G Smith, Australia’s future tax system: report to the Treasurer, Commonwealth of Australia, December 2009, http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf

Liberal Party of Australia, The Coalition’s real action plan for lower, fairer and simpler taxes, 2010 election policy, 2010, http://parlinfo/parlInfo/download/library/partypol/2DMX6/upload_binary/2dmx60.pdf

K Rudd (Prime Minister) and W Swan (Treasurer), Stronger, fairer, simpler: a tax plan for our future, media release, 2 May 2010, http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2010/028.htm&pageID=003&min=wms&Year=&DocType

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