Back in May 2008, when times were good and the inflation genie was free, the Government announced that a review of Australia’s tax system would be undertaken. But that was before the global financial crisis struck and a lot has changed since then, so should we be worried about what recommendations the review panel will make?
Personally I think the tax review will end up being an expensive way to churn out door stoppers and although I don’t doubt a lot of good ideas will come from it, I do doubt that most of them will ever be implemented. Why?
Well according to the mandate given to the panel: “The review will encompass Australian Government and State taxes, except the GST, and interactions with the transfer system”.
This would mean then that to implement many of the review’s recommendations, State and Federal Governments would have to work together and that seems like a long shot (unless the States are effectively bribed). Just look at the current spat between the States over proposed changes to how the GST money is dished out and you can see how well our governments work together.
Can you imagine if the panel suggested for example that the resources sector should pay more taxes? States like Victoria & NSW would probably have no problem but Queensland & Western Australia are unlikely to be very happy. (putting it mildly)
In addition the tax Kevin Rudd once considered evil, i.e. The Goods & Services Tax (GST) is not up for review, so the panel is not really reviewing the entire tax system at all.
Why has the GST been excluded from the review you ask? Well because the GST is a great earner for the Federal Government and they don’t want it messed with. Yes the Prime Minster once vowed to fight the GST when he was on the Opposition benches as a matter of principle, but when he finally finds himself in a position where he has the power to do something about it, he won’t even let it be reviewed.
I guess if Kevin Rudd was Winston Churchill he would have vowed to fight the German’s on the beaches, but then have done a runner if they actually started crossing the channel!
Anyway since the review panel are due to hand the report to the Treasurer in December (I hope they label it well for Swanny, in big letters) I figure it is a good time to think about what might be some of the big ticket items contained in it.
A few days ago one of the regular comment contributors to this site posted a link to a speech by Ken Henry entitled: Towards a better taxation of savings and I think that provides a useful framework when contemplating what the Australia’s Future Tax System Review Panel might come up with. (thanks Ned for the link!)
In this speech Ken Henry focuses on household income and highlights how superannuation, investment property, capital gains, salaries, bank deposits and shares for example are taxed differently. Does this suggest therefore the panel will try to align how these are taxed more closely?
Could we see for example the capital gains even on the family home taxed in the same way as capital gains on shares? Could the review suggest that all capital gains from any investment be treated in much the same manner?
I also noted with some interest this observation contained in the speech:
“One piece of anecdotal evidence that has captured my attention in the immediate aftermath of the global financial crisis is the role played by Australian superannuation funds in financing, through equity purchases, a large-scale de-leveraging of corporate Australia. It is not at all clear that such a large structural change in corporate financing could have been achieved without our very substantial pool of superannuation savings.”
I have read this a few times and cannot work out if it is a vote of confidence in the Australian superannuation system or a hint that the panel will be recommending some structural changes in this area? Honestly sometimes when economists ramble on I am not even sure if they clearly understand what they are talking about.
Frankly I don’t quite see how you can have a review of the tax system where the GST excluded. Of course there are plenty of other tweaks that can be made but why leave out the GST? Does this mean the panel cannot even suggest (dare I say it) raising the GST?
After reading Ken Henry’s speech I was left with the feeling that the whole exercise will deliver a politically bureaucratic flavoured report over to the Government at a time when they will be pre-occupied in trying to get debt under control and preparing for an election year.
Therefore the danger is that rather than a comprehensive review of the Australian taxation system ever being undertaken, all we will end up with is the Government taking the bits they like (and saying they were recommended to them by the panel) and parking the bits they don’t. Thus we will simply replace one unbalanced taxation system with another.
Or the entire report could get the same treatment as reviews of the transport system get in NSW i.e; a big announcement, press releases but then gradually get buried and the Government does what it wants anyway.
I also worry that the overall timing of the tax review is not particularly good. Is the Australian economy really stable enough to seriously think about actually making any changes to the tax system in the next few years? Also could the panel have been swayed too much by the abnormal financial events of the last few years?
If no action is taken on the recommendations in the final report soon after they are made public then they will be left hanging. Individuals, businesses and companies will be left to contemplate what measures may be acted on and which ones the Government will reject. This may lead to investor uncertainty and affect business investment decisions.
We should also not forget that the Emissions Trading Scheme is due to be rolled out in the next few years so is it even possible to do anything else but try and get that working until early into the next decade?
Finally the only way I can see the State Governments being happy is if they get more money. So no matter what happens I doubt the review is going to result in less tax revenue being collected and I would suggest if you have felt the hand of socialist leaning policies in your pocket, then you better be prepared for the same hand to be looking under your couch for loose change.
But to be honest I have not be following the review very closely (although I heard some rumblings about lowering the company tax rate) simply because I don’t see anything happening until the next Federal election is well out of the way. In the meantime I will sit back and see how much of the report is leaked to the media. (intentionally or otherwise)
So I welcome feedback from people who been watching how the review has been progressing. Will the review result in long overdue changes to the taxation system that will benefit the nation, or will it end up like a mini Australia 2020 summit minus Cate Blanchett?
Related posts:
- Why the Ken Henry taxation review will achieve little.
- A large population is not always the road to economic success
- The national broadband network: from debacle to disaster.
- A slow global recovery, the Australian economy & the stock market.
- Australia’s Balance of Trade, the Funky Four & the ASX All Ordinaries.
108 responses so far ↓
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76 Greg Atkinson // Feb 22, 2010 at 8:50 pm
I would guess the coalition would bring in views from a wide range of sources as they try and come up with tax policy. I am not sure why the SMH are trying to make a big deal out of it actually. What else can Opposition’s do besides try and develop alternative policies?
The Government on the other hand has made a bid deal out of their tax review but they won’t show anyone what they have spent our money on. It is after all, a report we paid for..what’s the big secret?
Rudd’s view of an open and transparent government looks pretty closed and opaque to me.
77 Ned S // Feb 23, 2010 at 1:41 pm
Kev seems more interested in chatting about whales and terrorists than about pink batts and taxes. It’s a pretty safe bet he’s looking for a few distractors.
Suspect he might need to broach the tax topic before he goes to the polls though? Before he does his budget even would seem sensible.
78 Greg Atkinson // Feb 23, 2010 at 2:11 pm
Ned I might be wrong as usual but I suspect Rudd is a guy who doesn’t takes criticism very well and is now a man with a damaged ego. If he slips more in the polls I reckon he will be unable to work out what to do and that the tax review will get the chop basically because it is too scary to touch.
As a result the budget will be an attempt to lift the Government’s standing and I guess there won’t be any major attempt to get debt under control.
Actually I wonder if Swanny has any clue of what he is doing yet? Could he even get spending under control if he tried?
79 Ned S // Feb 23, 2010 at 4:36 pm
Imagine the chap who’d never been wrong Greg – What a bloody pain in the arse he’d be.
Plus what an inconsolable basket case when he eventually was. Hmmm …
But philosophy aside, Yes, the Henry tax report issues are going to have to be handled very carefully by ALL aspiring government incumbents.
As to Swanny, and the ALP generally, they do have a few issues when one realises that their grassroots support still really comes more from those who want some money they didn’t make than from those who made it.
80 Greg Atkinson // Mar 4, 2010 at 11:43 am
Well it seems I was right on the money when I wrote in October: “I don’t see anything happening until the next Federal election is well out of the way”
Another win for this blog over the mainstream media plods who were getting all excited about tax reform.
81 Ralph // Mar 4, 2010 at 1:29 pm
Yes, nice crystal ball you have, Greg. K Rudd is a monumental disappointment. I don’t understand why he can’t just release the thing and let people see what’s in it. Can it be that bad?
If something comes out of this government, it will be a lesson not to overpromise. Kevvie made that mistake and now he’s rightly being tarred as a do-nothing government. And I’m not sure that he has any way out either. But his answer is to propose a colossal change in health that has about as much chance of success as pigs flying. I hope the electorate see it for the stunt that it is – bring out a policy change that is bigger than Ben Hur on the eve of the election and expect us to believe it’s going anywhere.
All this guy has done has spend money that we didn’t have in propping up the economy. Any PM could have done that. I mean, I could have done that just as well as Kevvie. What a joke.
82 Ned S // Mar 4, 2010 at 1:47 pm
Kev’s been busy with healthcare and hasn’t gotten around to doing the tax thing yet. So if Kev doesn’t do it, then there really is no-one else who can? This is insane.
And it isn’t even making headlines anywhere except The Australian by the looks? Has Kev got the media in his pocket or something?
Some quotes in relation to releasing the tax report:
“I believe what Australian people wanted me to do is to get on with the business of delivering health and hospitals reform. Number one priority,” he told ABC radio.
“Each thing in its season, we’ve got to do one thing at a time.
“But in terms of specific timetables for doing it, no, I don’t have anything particular in mind.”
So Kev reckons he knows what the people want?
And reckons One thing at a time???
So in relation to “specific timetables” on Tax, doesn’t “have anything particular in mind”.
I’m gobsmacked – Abbott should be cutting him to pieces!!!
83 Ralph // Mar 4, 2010 at 1:53 pm
Hopefully Abbott is just working on his lines and is about to come out swinging. His ‘great big new tax’ line has wored a treat. Once he works on the next one and repeats it a few hundred times, this health thing will be a dead duck too. He has so much ammunition. I’m looking forward to seeing the Liberal attack ads. They should be corkers.
84 Greg Atkinson // Mar 4, 2010 at 2:18 pm
The main problem as I see it is the quality (or lack of it) across the journalism profession in Australia. Most of the plods reporting for the mainpapers simply rehash press releases and don’t bother to ask the tough questions.
The notable exception being The Australian.
I can read Rudd like a book because he is from the same mould as Sol Trujillo. Honestly have a look at this article I wrote in 2008 and you can see Rudd’s has followed much the same path as Sol. http://www.shareswatch.com.au/blog/business/sols-magic-mystery-tour/
Maybe Sol and Kev are long lost twins?
85 Ralph // Mar 4, 2010 at 2:46 pm
Don’t forget the Fin Review. They also do a good job. But yes, I agree, the rest are dross.
86 Senator13 // Mar 4, 2010 at 3:45 pm
What a cop out.
First the “greatest moral challenge of our time” and now the urgent “root and branch” tax reform – both put on hold by Rudd. I’m not too worried about the ETS being killed off as it was just a joke – but the tax review – once completed should have been released.
It is going on three months now!!
Did Rudd not argue about business certainty with the ETS? Where is his certainty for business when it comes to tax?
87 Ned S // Mar 4, 2010 at 4:23 pm
It sounds to me like his relaxation therapy’s starting to kick in:
I know what I’m doing and it is good and worthwhile.
I won’t stress myself by trying to do more than one little thing at a time.
And I’ll steer clear of those timetable things ’cause they could stress me too!
Is he on Valium or what?
88 Senator13 // Mar 4, 2010 at 4:52 pm
That’s it – does not matter that the review has been worked on for 2 years and is finished!
I think Rudd is the type of person who can’t stand it if some people do not like him and call him PM blah blah.
89 Greg Atkinson // Mar 4, 2010 at 5:01 pm
You are seeing what happens when a guy who has never run anything is put in charge of the nation. Not only is Rudd a mess, but I don’t thing any of the cabinet have any hands-on experience either. They are either ex union reps or staffers from the ALP.
Just wait until after the election. If Rudd wins we will find that the parts of the Henry review that raise income for the Government will be suddenly become very popular.
I honestly don’t think the Government has any idea how they will fund the health system reform, build the NBN and pay down debt all at the same time. Why? Because it can’t be done.
As Scotty would say: “the engines can’t take it captain!”
90 Ned S // Mar 4, 2010 at 5:17 pm
With a bit of luck Kev will be a “oncer” and he’ll be remembered by history as the nice man who said Sorry to the ATSI folk. It isn’t quite up there with being a Billy Hughes or a “Pig Iron” Bob, but should still pan out better than being the bloke who said “All the way with LBJ”. Although Gawd help us and him if he’s a “two timer”!
Just read your Sol thing Greg – Yes, the one about setting the bar really low is important. For a number of reasons, Kev got that wrong – And it has now come back and bit him on the proverbial.
A bit of direction for businesses that are trying to plan and implement stuff in the real world is really handy as you indicate Senator.
Heck, does Abbott gut them for a) not knowing what is required to plan and implement anything or b) knowing the theory but not having the practical skills to do it or c) cynically withholding such info on direction from business for their own short term perceived political advantage?
I’ve had the jack of this bloke! I wouldn’t give him a job wandering around the supermarket carpark collecting the trolleys – There’d be way too much potential for him to do damage.
91 Ned S // Mar 4, 2010 at 5:45 pm
Wayne Swan (as per wiki): Studied “public administration at the University of Queensland, becoming a lecturer in the Department of Management at the Queensland Institute of Technology … before entering politics”
And Garret and Rudd’s writeups are less impressive in my opinion. Couldn’t bear to check anymore. NO PRACTICAL SKILLS in making ANYTHING happen in the real world.
Geez, pick a bloke who runs his own little business as a sparkie and you’d most likely do WAY better!
92 Anon // Mar 4, 2010 at 11:37 pm
lol….sigh. What have we done to deserve this punishment and incompetence.
“I’ve had the jack of this bloke! I wouldn’t give him a job wandering around the supermarket carpark collecting the trolleys – There’d be way too much potential for him to do damage.”
haha…When something goes wrong, he’ll likely setup a trolley committee to evaluate what happened. Followed by a review of the findings and then another committee for implementation recommendations.
93 Ralph // Mar 5, 2010 at 8:25 am
So it’s agreed. Putting Rudd in was a mistake that needs to be corrected. I just hope that Abbott is starting to prepare an alternative position rather than just opposing – the job is his if he wants it. Now we hear that there seems to have been widespread fraud in the pink batts scheme. I really can’t see how the gov’t has any hope of defending this $hit. People were happy for the stimulus to be rolled out, but I don’t think anyone could justify the waste that has come with it. Getting cash out the door is one thing, but even then there are limits.
Howard had reached his use by date, but I think few seriously thought Rudd would be this bad. As for sidekick Swanny, it’s hard to imagine a more inept politician. He clearly has absolultely no clue what he’s doing and can only recite party talking points given to him by his staff. Although, Garrett must go pretty close to giving Swanny a run for his money in the joke politician stakes.
94 Senator13 // Mar 5, 2010 at 8:37 am
The stimulus chqs were just a short term popularity ploy – I doubt many people would even remember receiving them let alone what they did with them and the chances of receiving some more free cash is slim.
So Rudd really does not have much of a foundation to go off. People are sick of his grand plans and spin I think. They just want to see something get done.
I think Rudd is starting to panic and rightly so because he has done nothing.
I just can’t get over him sitting on the review after claiming how grand it was going to be.
95 Greg Atkinson // Mar 5, 2010 at 3:32 pm
It is going to very interesting to see at what point the Henry Review will be dusted off. My guess is that it will be used as the mechanism to raise taxes by stealth in the name of “reform”.
The worrying thing is Rudd still seems to be hooked on spending and his health-care plan is likely to cost billions and undoubtedly millions of this will be wasted.
But even more scary is that the RBA and Treasury seems to have no problem with our spiraling nation debt of the governments spend-a-thon.
If the Chinese economy cools then we might just find that ourselves in a very nasty economic situation.
96 Senator13 // Mar 6, 2010 at 11:11 am
And here I thought that it would get buried in the Christmas news – I never thought it would never get released at all!
Is what is in the review really that bad??
I think your right Greg, tax by stealth might be their plan. They still have to pay for an NBN too…
97 Greg Atkinson // Mar 7, 2010 at 9:26 am
Senator when the review was first ordered by the Government Rudd & Swan were out selling it as a great moment in tax reform. Of course since the Henry review excluded the GST it was never going to lead to a system wide review of the taxation system, but at least a few good ideas were likely to come from it.
In any case, why would the people who ordered the report and made a such a big deal out of it now not want the public to see it? On what grounds is the report being suppressed? The answer is simply because the Government does not know how to handle the report now it has been delivered to them, and they certainly don’t want to face any tax related questions in an election year.
If they won’t even talk about tax reform how on earth will they ever actually deliver health reform?
98 MH // Mar 8, 2010 at 2:07 pm
Is it possible that they could be holding onto the reform until after the election. Hoping that they get re-elected by all of the mindless voters who had their hand out repeatedly. Their campaign will probably focus on the handouts and hospitals. Then after election, we will get shafted with new taxes and ITS, and swallow it for another 3 years. Whatever is in the review will hurt SME’s. Time to start preparing for more financial stress. I hope Abbott is ready.
99 Ned S // Mar 8, 2010 at 10:18 pm
Abbott has blotted his copybook straight off for mine – He wants to up taxes on big business and pay people to breed. Hey, I don’t care what he wants to use the money for; Or who he wants to take it off – The minute he says “increase tax”, that’s one strike. And he’s got lots of time yet to rack up two more and be “out”!
We’ll see. But another high taxing, high spending, vote grubbing politician doesn’t sound like what is required to me.
I think back to a supposedly funny yarn I heard once about a pretty unsophisticated old bloke in a third world democracy, who when asked how he intended to vote, replied along the lines:
“Well, the first bloke who came through said he’d give me 10 dollars to vote for him; And the second bloke said he could only manage $5; And the third bloke offered me $2. I figure I’ll vote for the third bloke because he is the most realistic and least corrupt.”
100 Senator13 // Mar 9, 2010 at 3:39 pm
I would have to agree with you Ned. I am not a fan of the scheme or any paid maternity type schemes. It just encourages people to take on more then they can handle and compensates people for lack of forward planning. It also makes it harder for the organisation to do business.
I do not think that now is the time for any new expenses especially those that involve raising additional tax.
So I am far from being sold on the idea.
I am sure the tax review would have covered such matters – but it looks like we will never know.
But maybe this is the price to kick Rudd out and hopefully in the long term the good things that come of kicking out Rudd out weigh the bad?
101 Ned S // Mar 9, 2010 at 8:33 pm
As I said Senator, it’s more about the fact that he wants to up taxes to buy votes, than about what he wants to spend the taxes on per se. But Yes, I’ve got lots of reservations about governments fiddling to bring about societal change. And the example of them choosing who will and won’t be paid and how much to breed, is one that Australia has an extremely poor track record on – IMO.
102 Greg Atkinson // Mar 9, 2010 at 10:01 pm
MHL I would say Rudd and Co have looked at the Henry report and realised it is simply too hot to handle in the public domain before the election. Then after the election I guess what you suggest will probably happen and suddenly there will be tax increases because Ken said they were a good idea.
I am not sure why Abbott is on about paternity leave, he should focus on giving people a choice between a big spending government that wants to run everything, and a smaller government that stays out of our way as much as possible.
103 Ned S // Mar 10, 2010 at 10:42 am
Swan and Rudd between them presumably know way less about taxes than pretty much any CPA. So they’d be poking their necks out a lot to tell a bloke like Henry who presumably knows more about tax than just about anyone in Oz, that he is wrong. No, their input really just boils down to figuring out what is politically acceptable to implement when – Precisely “because Ken said they were a good idea”.
And at the moment, they don’t feel it is politically acceptable (for them), to even see the report discussed it seems?
As to Abbott, well dropping clangers like he is going to up taxes on big business by 1.7% out of the blue is rather strange behaviour – A measure of just how much he’d desperately like to be PM perhaps?
104 Ralph // Mar 10, 2010 at 2:22 pm
Nice commentary, guys. Keeping the Henry tax review on the shelf is more than anyone expected, I think. If there was ever anything that tags Rudd as gutless, this is it. It really does show they are afraid of offending anyone.
My guess is that it’s not even that explosive. More that K Rudd doesn’t know how to respond in a way that doesn’t alienate at least one key voter bloc. He’s already on the nose due to a perception of lack of delivery. So he responds with a grand health proposal that has absolutely no chance of being implemented. That’s more evidence in the public’s eye of “all talk, no action”.
If K Rudd were to release the tax review, it’s inevitable we’d see no concrete tax reform come out of that – Kevvie has the brown underpants on. So yet another example of all talk, no action. The poor guy is damned if he does, damned if he doesn’t. Rather than release a report he can’t act on, he chooses not to release it at all and be seen as a non-actor. Not that I feel sorry for him, mind you.
105 Ned S // Mar 10, 2010 at 6:53 pm
I find it very, very difficult to respect anyone who actually wants to be a politician in a reasonably affluent democracy. They are either stupid and don’t realise what the job entails; Or self-serving and don’t care; Or arrogant and think they can improve things regardless! Hmmm … Don’t mind me; I’m just having one of my I hate politicians days.
106 Ned S // Mar 10, 2010 at 7:17 pm
And truth be told it’s often/usually(?) all three – “stupid”, “self-serving” and “arrogant”. Geez … No wonder a man has become a conscientious objector when it comes to voting. My personal opinion is that the sooner we all stay home on polling day to tell the twaddle-hards what we really think of them, in overt defiance of their having conscripted our votes, the better!
107 Ned S // Mar 11, 2010 at 10:48 am
Remind me again – Why exactly do we have politicians and just what do they add to our lives? The last time I can recall one doing something of significant use was back in the 1970s when Whitlam finally bailed on Vietnam. And that was just reversing another bloke’s cockup.
108 Greg Atkinson // Mar 11, 2010 at 3:04 pm
Ned this is a big part of the problem, you just don’t get a lot of talent into the political ranks because the profession is held in such low regard. The same could be said for journalism as well, it scores pretty low when they do surveys about which professions are respected.
As for the Henry Taxation Review, what a complete waste of time and money. If I were Ken Henry I would not be a happy camper and I feel sorry for the members of the public who put in the effort to forward submissions.
All in all, pretty disgraceful behaviour by Rudd & Swan.
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