Tax landscape

Tax agenda 2013

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Tax uncertainty is damaging Australia

The current complexity and uncertainty of the Australian tax system is damaging business confidence, hindering job growth, discouraging productive investment and diminishing the country’s reputation. At a minimum, improving the policy process should be the first tax priority for the incoming government.

The current process reflects policy making on the run with tax laws announced without rigorous pre-analysis or against private advice. This approach 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 first commissioned and still there is no clear strategy for our tax system.

The causes of the current uncertainty are indisputable. They include:

  • Lack of consultation. Tax announcements are made without proper consultation, often for political or revenue raising effect.
  • Wavering political resolve. Announced changes are cancelled or postponed prior to implementation (including some measures in the 2013 Federal Budget).
  • Lack of resources. Measures take an inordinate amount of time to be properly drafted and legislated 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. Reserve Bank Governor Glenn Stevens noted that in order for Australia’s growth to resume one ingredient required is “’confidence’ … The business community’s confidence has been quite subdued in recent times... we have to rely on:

  • clarity of policy frameworks and objectives;
  • constant application of policies towards well-understood goals; and
  • attention to avoiding things that can dampen confidence unnecessarily.

All the more reason, then, to make sure that the accretion of regulatory actions being undertaken does not inadvertently make it harder for businesses to plan with confidence, to achieve better cost and productivity performance, or to take a chance on a new product, a new investment or a new worker.” Our complex, constantly changing tax system with its 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’.

In our opinion, clear actions to correct the flaws in the tax process include:

  • 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; and
  • Adopting a methodical approach to the maintenance of existing tax law.

A strategic review of Australia’s tax policy direction is needed. 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 instil confidence and predictability in the Government’s management of superannuation. Australia’s tax system deserves at least the same respect.