Flat White

Time to rethink tax reform

2 August 2017

1:35 PM

2 August 2017

1:35 PM

Tax reform is an important area of public policy and one in which neither major party can hold its head high at the present time. Both the Coalition and the Australian Labor Party are guilty of treating the putters like mugs and fools when it comes to providing a proper holistic view of tax reform.

Neither side has given Australians a full appreciation of what they intend to do with the area of taxation in a way that provides the voters irrespective of their political loyalties confidence that the right ideas are being explored and placed before them for consideration.

Both major parties deserve a whack around the ears for creating the environment where genuine reform is impossible unless some neutral ground is found for issues to be explored

Let’s deal first with the events that have brought on the current pageant of colour and movement on tax policy before cautiously touching on a way in which tax policy might be discussed from multiple perspectives that could result in a more productive discourse.

Labor’s proposed reform of the taxation of trusts is a poignant case study of policy being drip fed over a period of time. The details of the policy, which seeks to impose a fixed tax rate on those receiving an income from a discretionary trust, are not as relevant in this context as is the tactic.

The opposition has announced this policy initiative with the full knowledge that it will dominate debate over a week. It has at the time of writing being rather successful at drawing an immense amount of attention on social media, in print, talkback radio and, of course, television with interest groups scrambling to place themselves in front of the nearest microphone. Some people may well be reviewing their financial arrangements to try and better understand what on earth this proposal might mean for their future.

The discretionary trust proposal is one item in what is a large policy area. It is a single brick and as the son of a bricklayer I know one thing for certain – one brick does not make a house. The problem with the piecemeal release of tax policy is that the voters and the media lose perspective  One proposal does not represent the entire tax system and one proposal cannot save an entire system. A house is built with a plan that has been meticulously drawn by an architect’s hand. Tax policy ought to be treated in the same manner. What happened recently in architectural terms at the NSW Labor State Conference was the release of the sketch of the walk in wardrobe. It left me wondering what happened to the rest of the house. Where did it go? Does it even exist?

In fairness to Labor, they have released a series of tax measures for public debate related to attacking the use of tax havens, capping the amount deductible for the management of tax affairs and also their negative gearing policy. It is still an inadequate way in which to provide the Australian community with an alternative government’s vision of reform in taxation.

Those hanging around on the other side of the despatch boxes cannot criticise Labor for its trust proposal without acknowledging their own baggage in taxation policy The coalition parties jettisoned a perfectly good reform process that was started by former Treasurer Joe Hockey that attracted more than 870 submissions from individuals and organisations.

Reflect for a moment on that particular number. There were 870 submissions prepared by people representing themselves or an organisation who were hoping that the ideas they were putting forward might be considered worthy enough for a reform process to actually produce ideas to change the tax system for the better.

The coalition switched leaders when Malcolm Turnbull successfully challenged Tony Abbott. That challenge meant that the government ended up with a new Treasurer in Scott Morrison. Groups that had submitted to the process initiated by Joe Hockey still had hope that the government would respect their contribution and efforts and reward them as stakeholders, constituents and voters with an end product.

There was no advance on the initial high-quality paper released by Federal Treasury that drew that phenomenal response from Australians wanting to be heard on an important area of public policy. The failure of the government under Turnbull to continue on with the tax reform process was a clear indication that Turnbull, Morrison and others within the cabinet failed to appreciate that the economic narrative was absolutely on the money when it came to tax reform.

It is time to call it out for the political spin cycle that this has become. This is not responsible policy development for either side. It is just plain stupid. The fact is that unless you present the Australian people with a clear picture of the full architecture of a revised tax system you are playing them for mugs and fools.

One way in which to reset the discussion so that it is more likely to reach a productive outcome is for the federal parliament to have a Senate select committee on proposals for the reform of the Australian taxation system. It should be a two stage process with the first stage being constituent consultation and the second stage almost exclusively getting suggesting policy positions being modelled by the Parliamentary Budget Office. The first stage should give rise to an interim report setting out policy preferences and the final report should provide the committee’s view on suggested reforms based on all of the research. That document should give rise to tax reform proposals that are taken to the next election.

The Senate might be disrespected by some commentators as resembling a ‘Star Wars cantina’ but a Senate committee with a composition reflecting varying backgrounds and skill sets is one way of enabling the people – individuals and organisations – to regain some ownership in the reform process. There is also danger that the Senate might get a review of possible tax reforms right.

Tom Ravlic is a Melbourne consultant. He tweets at @TRAVLIC.

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