The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

5 October 2011

NO.031

Closing Remarks for the Tax Forum

Parliament House, Canberra

5 October 2011

-- CHECK AGAINST DELIVERY --

Can I begin by asking you to join me in recognising all of the committed people who made the forum run so smoothly

Can I single out the staff in particular, and our facilitators Michael and Paul, and can I thank you all for your contributions

The Government is delighted with how this forum has gone

I'm proud of the discussions we've just had – just as wide-ranging, open and constructive as I hoped it would be when we began

We proved we have the capacity for a mature, forward-looking policy debate – and proved some critics wrong in the process

I'm heartened that the fundamentals of our existing reform program have found a lot of support in this room and we're on the right track

It's true we've had some disagreements – some areas clearly don't have consensus and need further discussion

But the real tribute to you here is the fact we've been able to nut out some difficult issues along the way

We will draw on the priorities identified over the last two days, as the building blocks for the next stage of ongoing tax reform

Let me run through some of those now as we wrap things up ...

Business Tax

The business tax discussion was dominated by ideas about how to respond to the  pressures of a patchwork economy

There are different views on an across-the-board company tax cut.

The Henry Review recommended a cut from 30 to 25

Some, such as the Australian Industry Group and the Business Council argue in favour of that;

Others, such as the ACTU and Australian Council of Social Services argue against;

And a number of people have noted that the company tax rate doesn't matter so much for small business

But there seemed to be more of a consensus on more targeted measures to help struggling businesses

It came down to the question some people raised about whether company rate relief is best as one big hit or in a more targeted way

And whether a more targeted tax cut suggested by some people in their comments means we can afford to then treat losses differently

Losses were raised by people like Heather Ridout, Teresa Dyson, Frank Drenth, Alf Capito and Ken Henry

There is common ground and we need a way to take things forward

So I have asked Chris Jordan to chair a business tax reform working group – and I thank him for agreeing

It will include business leaders, tax experts, unions, and will be supported by Treasury

It will look at business tax responses to a patchwork economy, and how to fund them

In these times of patchwork pressures, more than ever, business needs the flexibility to make the leaps of imagination and inventiveness that have always made our country strong.

We want to act on these ideas as soon as we responsibly can

That's why the first priority is to identify options for losses and options for savings to fund them

It will provide an initial report in November, and a final report by March next year

We need to consider things like loss carry back, uplifting losses, and what happens to the value of losses when business change composition or ownership.

The working group should also identify ways to fund these ideas, from business tax

AIG, the AWU and Saul Eslake all talked about whether we target the company rate cut a bit better and ACOSS talked about opportunities for companies to shift profits offshore

These aren't the only options, there are lots of others

The second priority is to look at longer term company tax options, and report during 2012

This should look at broader questions of working up if and how an equity allowance could work

And it should compare these ideas to changing company tax rates as a longer term direction

Of course, it will also need to look at savings options to fund any ideas here too, from the business tax bucket

Small Business

We've also heard loud and clear small business concerns about complexity

The instant write-off will simplify and cut tax for small business from next year

We introduced it, we increased it to $6,500 and we will take any opportunity to take it further

Standard business reporting and the superannuation clearing house also reduce some of the burden

But I've asked Treasury and the ATO to put their heads together with the Council for Small Business to identify the best ways to reduce complexity, in the coming months.

States

Next was state tax reform – and this was probably the most passionate discussion at the forum

Remember Michael Pascoe couldn't find one person out of 200 to put their hand up to support state insurance taxes?

And not even the states think their own state taxes are any good

Their stamp duties harm labour mobility and housing affordability;

their insurance taxes discourage people at risk from taking out insurance;

And their payroll taxes, with their inefficient structures, may  hinder employment.

Unsurprisingly, there's less agreement on who should fund reform

The States want access to Commonwealth income tax because they say they can't fund their own expenditure.

But many people at this forum said that some state tax bases are inherently good and they could go a long way to funding themselves if they reformed them, by themselves.

It's clear we're not going to solve state taxes here, even with all this goodwill

I thank Mike Baird and Andrew Fraser for agreeing to work with the Council of Australian Federation to develop a state tax reform plan, for further discussion with the Commonwealth

The Council will develop the plan; we will all discuss it at treasurers level; then we'll take it to COAG for agreement and implementation.

This state tax reform plan needs to be feasible; it needs to be practical but it must also be genuine reform

I want the first iteration by the end of 2012, including a clear timetable for harmonisation and additional steps beyond that.

As we have said, we won't be funding state tax reform through an increased GST, or through a state income tax levy

This would not give the states the right incentives to reform their own taxes and what's worse, it would hit families.

And we can't argue for a simpler system then multiply the number of income tax scales by eight

In this context, it's also important to remember the significant additional investment this government has made in social services delivered by states and territories – education, disability, social housing and not least health.

Under the government's historic health reforms, the Commonwealth will pay half of every new dollar of spending on hospitals – a radical departure from current arrangements.

As a result, the Australian Government will invest an extra $175 billion in state the public hospital system from now and until the end of the next decade. 

That's $175 billion which states otherwise would have had to raise using their existing revenue base.

I've also asked John Brumby's team to consider some of the forum's comments about the GST formula, in his distribution review

We heard a number of comments about how the GST formula can affect the incentive for states to reform their taxes

But like Lara, I'm a long-time supporter of equalisation so I want the best combination of fairness and reform incentives.

Personal Tax and Transfers

Let me turn to personal tax and transfers now

They were two different sessions today but people who know me know I've always seen them as two parts of the one whole

The core of our policy is to reward hard work, especially for people making the transition in to work

A few months ago, we announced that we would triple the tax free threshold from $6,000 to $18,200 on 1 July next year.

This is a massive reform that will reward hard work, improve the interaction between tax and transfers

Our first priority in further personal tax reform will be to increase the tax-free threshold further, to at least $21,000, and remove the Low Income Tax Offset entirely

Lifting the tax-free threshold to $18,200 will free up to a million taxpayers from having to fill in a tax reform. 

Lifting it further to $21,000 would push this to well over a million.

It would mean better rewards for work, which would mean more Australians in work.

But consistent with all we do, we need to make sure that the country can afford it before we set the timeline.

The discussion has not just been about tax cuts.

Many participants have suggested some of the tougher ideas, things that close what they see as tax loopholes

For example, Tim Lyons' comments on the Living Away From Home Allowance are definitely worth exploring

Of course, there's no agreed definition of a loophole

But I thank all participants who were prepared to take up the challenge and identify ways to fund proposals

This isn't about creating scapegoats or class warfare

It's about making sure our tax system is as effective as it can be, and that means identifying and fixing any current leakages

We've had such a broad and rich discussion of personal tax and transfers, that I could not possibly do it all justice in this short talk.

So let me briefly run touch on a number of things we will also progress

We're implementing important participation reforms, announced in the 2011-12 Budget

Implementing this is our priority, but going forward I would welcome a more detailed discussion about what are the best next steps

We're busy implementing important superannuation reforms, increasing the super guarantee, making concessions fairer, and of course MySuper

But Bill Shorten and I also heard the discussion about drawdown phase options like annuities and deferred annuities and we will put more thought into this issue

We are committed to supporting the not for profit sector, but I've also heard voices say we could deliver support more effectively

So I want the Not-For-Profit Reform Council to extend its work to look at ways to support the sector more effectively,

Bill and Tanya will be involved, and consultation with the broad and diverse sector will be critical

We're acting in personal tax simplification, expanding pre-filling, delivering a standard deduction and tripling the tax free threshold

But we will look to do more to make it simple enough for more people to do their tax themselves if they want

Governance

Bill talked about a number of good ideas for tax system governance earlier, and I don't intend to repeat them here

But I will reiterate that I understand the benefits of developing a more comprehensive and transparent tax law design process

I've also heard the voices call for more tax and transfer system research, to support more evidence based policy development

This didn't just come from academics but right around the room

So we will contribute around $1 million per year to create an independent Tax Studies Institute, as a centre for research excellence, linked to our universities

The institute will look at things like the design and simplification of the tax-transfer system

Because the tax system affects all Australians, the institute will accept tax deductible funding donations

And because the tax system affects all governments, I will welcome state government contributions

Conclusion

I'll finish by saying that on top of our 32 existing reforms we've found enough common ground to support more ambitious reform

One of the things I've enjoyed most about the last two days is the appreciation around the room that reform is hard, but worthwhile

I think you have got a deep appreciation of the choices governments face and I have an appreciation of your trade-offs too

So on that measure – on the tests we set ourselves at the start of this forum, on being constructive – we have passed a critical test

We've done it in a way that recognises tax reform's role in a stronger, fairer, broader, more modern and competitive economy

And because of that we've also recognised tax reform doesn't just have the capacity to improve the lives of some of you, but everyone

Some of the policies we have begun to sketch out together won't be popular, and many will be difficult to fit into a sound bite

So we need the spirit and commitment to reform we found over the last two days to endure well beyond the forum

That's the best contribution you and I can make to our country in the months and years ahead

So thank you again for coming, safe trip home, and let's keep progressing tax reform in the national economic interest