Tax uncertainty is damaging Australia

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Tuesday 20 August 2013 — Uncertainty caused by Australia’s tax policy process hinders job growth, discourages investment and diminishes the country’s reputation, EY said as it released its report Ensuring Australia’s economic sustainability – Government Agenda 2014.

EY Tax Leader Craig Robson said improving the policy process should be the first tax priority for the incoming Government.

“The complexity and uncertainty of the Australian tax system damages business confidence and discourages productive investment which impacts jobs and economic activity,” Mr Robson said.

“The current process sees tax laws announced without rigorous pre-analysis or against private advice.

“This necessitates post-announcement consultation which often calls into question the soundness of the decision in the first place.

“In this environment we see uncompetitive or ill-considered tax announcements, such as the recent abolition of interest deductions for companies investing offshore.

“It has been six years since the Henry Review was commissioned and still there is no clear strategy for our tax system.”

EY’s report details causes of tax uncertainty including:

  • Tax announcements are made without consultation, often for political or revenue raising effect.
  • Announced changes are cancelled or postponed prior to implementation (including some measures in the 2013 Federal Budget).
  • Measures take a long time to implement due to the Federal Treasury’s lack of tax policy resources.

“Australia is heavily reliant on global capital and needs to be an internationally attractive location for business investment,” Mr Robson said.

“Our complex, constantly changing tax system with the associated surprises and high compliance costs does nothing to sell Australia as an attractive investment option in the global capital markets.”

The 2013 IMD World Competitiveness Survey ranked Australia only 29th for ease of doing business.

EY recommends the following actions to correct the flaws in the tax process.

  • Regaining trust by releasing a transparent list of announced measures and their status.
  • Cancelling or reconsidering various announcements to ‘clean out the stables’ of tax reform measures.
  • Introducing a structured approach to managing reforms similar to New Zealand’s Generic Tax Policy Process.
  • Establishing a tax policy governance board to provide external oversight of tax reform processes.
  • Adopting a methodical approach to the maintenance of existing tax law.

“A strategic review of Australia’s tax policy direction is needed,” Mr Robson said.

“The next parliament should establish a consultative process to set the environment for the Australian tax system, and to fully expose the risks and challenges ahead.

“The focus of any tax system review should be encouraging economic growth, recovering Australia’s position as an attractive investment destination and driving jobs growth.”

The Rudd Government recently announced the establishment of an institutional framework designed to instill confidence and predictability in the Government’s management of Superannuation.

“Australia’s tax system deserves at least the same respect,” Mr Robson said.

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Contact details:

Mac Dalton
Ernst & Young Australia
Tel: +61 3 9288 8108 or 0415 835 634