The biggest tax reform since the 1950s

Joe Hockey, the Treasurer of Australia in the Abbott Government wants to overhaul the tax system: Pic: Scott Barbour/Getty Images. Source: Getty Images

WANT to pay less tax? Tell Joe Hockey how and why and your ideas just might end up in the Coalition's election policies next year.

That's the broad promise from the Federal Government today as it gingerly prepares for a tax reform campaign at the 2016 polls where it will hope to win approval for significant changes, including less reliance on taxing individual and corporate incomes.

The Government also wants to eliminate differences in the tax treatment of various types of retirement savings, and to reduce the number of special concessions which make the tax system complex and expensive.

Treasurer Hockey is releasing a tax discussion paper today and inviting all interested groups and individuals to contribute proposals on the questions it outlines. "Lower, simpler, fairer," is his tax system objective from this "conversation".

Tax reform is set to be on the agenda for the next Federal Election. Source: Getty Images

But don't expect a quick response from the Government. And such are the leisurely pace and care-not-to-scare political management priorities there will be nothing about these potential reforms in the next two Federal Budgets.

Contributions will be distilled into a discussion paper of options – a green paper – late this year and then the Government will produce a further refinement into the actual policy it will take to the election scheduled for late 2016.

The process of tax reform is likely to be a long one. Source: Supplied

The process is in sharp contrast to the Coalition's approach to the 2013 election, when the emphasis was on dismantling Labor programs rather than creating new ones, and is a gentler strategy than the Budget last May which was had shocks, surprises, broken promises and few sweeteners.

The inspiration appears to be former Liberal John Howard's measured and consultative delivery of a GST, the last major tax reform.

The discussion paper says Australia's overall tax burden is relatively low compared to other developed countries with the Federal Government raising 81 per cent of total tax revenue, much of which goes to the states to make up 45 per cent of their income.

In a clear indication of the direction the Government would like the debate to take, the paper says Treasury research estimates each additional $1 collected in company income tax

reduces the living standards of Australian households by around 50 cents in the long run through reduced investment.

The last major tax reform in Australia came during the Howard Government when the GST was introduced. Source: NewsComAu

And it points out some 70 per cent of revenue is from income tax, compared to 60 per cent in the 1950s. And inflation increasingly means workers are forced to pay higher tax as wages go up even though the buying power of their pay packet doesn't rise as fast – bracket creep.

Around 300,000 Australians are expected to move into the second highest tax bracket over the next two years.

"Australia relies heavily on income taxes, particularly company income tax, compared to

other developed countries as well as our Asian competitors," said the discussion paper.

"Australia's reliance on income taxes remains much the same as it was in the 1950s, despite changes in the economy, and is projected to increase further, largely as a result of wages growth leading to individuals paying higher average rates of tax (bracket creep)."

Some 70 per cent of revenue is from income tax and it's pretty much been that way since the 1950s. Source: News Limited

The paper highlights differing tax treatment for types of retirement savings.

"At one end of the spectrum, savings held in the family home are taxed at average effective tax rates approaching zero. At the other end of the spectrum, savings held as financial deposits are taxed at full marginal rates, without any recognition for the costs of inflation," says the paper.

"The policy rationale for these differences is not always clear and can distort taxpayers'

savings decisions. This has implications both for efficiently allocating savings in the economy

and distributing risk across households."

Super gets taxed at different rates depending where it is nested. Source: News Limited

It also wants to make the tax system less complicated, possibly by removing "tax concessions aimed at assisting particular groups".

"Another reason is the regular 'patching' of the law to fix narrow problems or provide certainty for taxpayers and transactions without fully considering consequences for the system as a whole," the discussion paper says.

"Overly risk-averse attitudes from policy advisers and administrators, combined with complex legislative drafting styles, have also led to complexity. Governance arrangements should ensure tax design and administration practices minimise unnecessary complexity and support the implementation of sound tax."

Feeling this sensation after tax is taken out of your pay packet? Source: News Limited

The formal submissions process continues until Monday, June 1.

If you have any questions or comments, you are welcome to contact the Tax White Paper

Task Force at bettertax@treasury.gov.au or at:

Tax White Paper Task Force

The Treasury

Langton Crescent

PARKES ACT 2600

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