CHAPTER ONE - THE INQUIRY
Referral and terms of reference
1.1
On 12
December 2002, on the motion of Senator Jacinta
Collins, the Senate referred the following
terms of reference to the Economics References Committee, for inquiry and
report by June 2004:
The structure and
distributive effects of the Australian taxation system with reference to:
a) the level, extent and distribution of the current tax burden
on individuals and businesses;
b) the impact of (a) on taxpayers' families;
c) the use and efficacy of various tax and expenditure incentives
to influence social and economic conduct, for instance participation in the
workforce;
d) the long term social and economic impact of the current
distribution of taxation, government spending and employment including the intergenerational
consequences of the tax structure;
e) the respective roles of the Commonwealth and the States in
relation to the collection and distribution of taxation revenue; and
f) any other relevant issues which may arise in the course of
the inquiry.
1.2
On receiving this reference, the Committee noted that
the terms of reference are exceptionally wide, and amount to an invitation to
the Committee to conduct a wide-ranging assessment of the Australian taxation
system.
Conduct of the inquiry
1.3
The Committee placed a call for submissions in The Australian newspaper and on the
Senate's website. Closing date for
submisions was 28 July 2003,
and 111 submissions were received. A
list of the parties who provided submissions is at Appendix 1.
1.4
The Committee held a total of four hearings during
2003. The first two hearings, on 28 and 29 July 2003, focussed on issues of
distributional justice with particular reference to the combined effect of the
welfare and taxation systems on households in different circumstances. The third hearing, on 12 September 2003, focussed on compliance and
the impact of tax reform on the cash economy.
The final hearing, on 2
December 2003, was a round table of experts convened to consider
further directions of inquiry for the Committee. It is discussed further below. A list of the witnesses who appeared at these
hearings is at Appendix 2.
Round Table of Experts
1.5
As noted above, the terms of reference for this inquiry
are unusually broad. While the Committee
received a substantial number of submissions, it became clear to the Committee
that insufficient evidence had been receive to support a thorough and
wide-ranging reassessment of the entire taxation system. However the submissions and evidence did
point to specific areas of concern within the taxation system.
1.6
In October 2003, the Committee met with officers
from the Department of the Parilamentary Library[1] to discuss
possible options for dealing with the breadth of the current reference. Following that meeting, the Committee determined
that it would report the evidence obtained in this inquiry process, and would
endeavour to establish the basis for a subsequent series of more focussed references on particular
taxation issues. To that end, the
Committee convened a round table of experts on 2 December 2003, to discuss the areas of
policy within its current terms of reference that might usefully form the basis
for future, more focused references from the Senate to the committee, and to
give the Committee some guidance about the priority which might be given to
these references.
1.7
The outcome of this round table, together with the
Committee's subsequent deliberations, for the basis of Chapter 6 of this
report.
Objectives of this report
1.8
As noted above, the Committee has not responded to the
current terms of reference by undertaking a sweeping review of all aspects of
the current taxation system. This report
will not, as a result, recommend substantial changes to the tax system. Instead, this report has the following
objectives:
-
to present the evidence received by the
Committee in the form of submissions and oral evidence, as a contribution to
ongoing public discussion of taxation issues;
-
to present the views expressed during the round
table of experts, which were explicitly presented as guidance for future
references; and
-
to set out a proposed series of references which
the Committee might usefully consider during the remainder of the 40th
Parliament and during the term of office of the 41st Parliament.
Structure of this report
1.9
The first chapters of this report will set out the
evidence received by the Committee in submissions and oral evidence. This evidence has been arranged by issue, and
these issues formed the basis of the discussions with the round table of
experts.
1.10
Chapter 2 of the report focuses on the taxation of
families. It discusses whether the
taxation system supports or penalises couples wishing to establish families,
and whether the interaction between the taxation system and the welfare system
(through both direct payments and tax benefits) proides sufficient support to
families.
1.11
Chapter 3 of the report discusses the tax system and
low income earners. Consequently, this
chapter discusses the impact of 'bracket creep' on low income earners, and the
impact of high effective marginal tax rates on low income earners attempting to
move from welfare into paid work.
1.12
Chapter 4 of the report discusses issues of taxation
compliance and, as a related issue, the impact of the cash economy on the
taxation system. This chapter examines
the use of trusts as a vehicle for tax avoidance, and the taxation treatment of
Pay as You Go (PAYG) taxpayers in comparison with the tax treatment of
self-employed taxpayers.
1.13
Chapter 5 of the report discusses other issues raised
in evidence, including the issue of vertical fiscal imbalance, the use of
taxation to promote social objectives (such as a reduction in gambling and
alcohol consumption), and the support in some submissions for a flat tax or a
debit tax.
1.14
The final chapter, Chapter 6, sets out the results of
the rouble table, and points to a number of areas where the Economics
References Committee might usefully undertake future inquiries. These issues are set out in three general
categories:
-
tax avoidance and erosion of the tax base;
-
the relationship between the tax system and the
social security system; and
-
equity in the tax system.