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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

12 October 2011

NO.033

Parliamentary Debate on Tax Reform

Tax Reform in Australia

House of Representatives, Parliament House
Canberra

12 October 2011

Mr Speaker, last week the Government convened a forum of almost 200 people to discuss the next steps in tax reform. By any measure, the Tax Forum was a great success. I'm proud of the forward-looking discussion, which confounded the critics and cynics.

We drew together representatives from across the country, and heard views from the boardroom, from the factory floor, and from around the kitchen table. No topic was off limits, and the conversation covered a broad range of ideas, just as I'd called for less than a month ago in this place.

We did not all agree – it would have been pointless if we did – but we did find some common ground across long-standing political and ideological divides. We will progress a number of these issues coming out of the forum, as part of a second wave of tax reform.

The Tax Review

Mr Speaker, the Tax Forum wasn't the start of the tax reform process. Tax reform has been a central part of this Government's economic agenda.

We came to government after years of Liberal neglect. Certainly Australians had seen largesse, bankrolled by the windfall gains of repeated revenue upgrades from mining boom mark I. But Australians had not seen anything approaching tax reform for years.

So we commissioned the Australia's Future Tax System Review, to reinvigorate the tax reform debate, to give it direction and purpose. We gave the review an ambitious scope – taxes and transfers, across all levels of government.

First Wave of Tax Reform

After receiving the tax review, we set about a broad and ambitious agenda of tax reform.

Mr Speaker, the Prime Minister and I have spoken at length about our patchwork economy. Some sectors are booming – for example the mining sector expects to invest $82 billion in this financial year alone. But other sectors struggle with a higher Australian dollar, a cautious consumer, and increased competition for labour and resources.

So our first wave of reform was a response to the pressures of a patchwork economy. We adopted the central thrusts of the tax review:

  • One, get a better return for Australia's non-renewable resources through a profits-based tax;
  • Two, cut business tax to help struggling firms, with a company tax cut and a billion dollar tax break for small business;
  • Three, save some of the gains to prepare for an ageing population, by boosting superannuation and making concessions fairer;
  • And four, promote participation, by tripling the tax-free threshold from $6000 to $18,200.

But we're doing so much more than this, with 32 reforms that deliver on ideas in the tax review. We are: boosting workforce participation through a suite of budget reforms that were widely welcomed and included phasing out the antiquated Dependent Spouse Tax Offset and reforming transfer payments; simplifying personal tax with a standard deduction for work-related expenses; fixing the FBT treatment of cars; revamping the R&D tax incentive to boost innovation; modernising the governance of the system; the list goes on and on.

We are doing all this at the same time as keeping tax as a share of GDP below the level we inherited. This year, tax is expected to be 21.8 per cent of GDP. That's substantially less than the 23.5 per cent we inherited, and much less than the all-time record of 24.1 per cent set by those opposite in 2004‑05 and 2005‑06.

The Tax Forum

But I know from experience that tax reform is never finished. It is a journey rather than a final destination. So we held a forum to talk about the next steps in tax reform, to discuss how to build on our existing tax agenda.

As I said earlier, it was a great success. We heard from business, big and small. We heard from community groups and unions. We heard from experts, both from tax professions and our universities. We heard from the people at the front lines, small businesses and local accountants.

I thank all the participants. We didn't always agree, but we did find common ground.

Second Wave of Tax Reform

An over-riding theme was that responding to our patchwork economy is a priority. We all agreed that parts of our economy are under significant pressure. But of course there were different ideas on how to respond. For example, participants had different views about across-the-board company tax cuts.

But there was also some consensus – for example around more targeted measures like improving the tax treatment of losses. And there was some consensus about the best way to develop those ideas – through a collaborative working group.

At the end of the forum I announced that we would bring together a business tax working group, to be chaired by Chris Jordan. Its first job will be to look at losses, and how to fund any changes from within the business tax system. Its second job will be to look at longer-term ideas like a deduction for equity, and compare them to alternatives like changing the company rate.

Another area where we forged a consensus was on the vexed topic of inefficient state taxes. After roughly seven years in the Treasury portfolio, I have not before encountered such a mature acknowledgment of the deficiencies of many state taxes. I see this acknowledgement – coming from state treasurers from both sides of the political aisle – as something of a breakthrough. Equally encouraging was the acknowledgment that the solutions lie not in the lazy option of jacking up the GST in a way which hits low-income Australians hardest.

Coming out of the forum, the states, led by Queensland and New South Wales, will develop a plan for harmonisation and further steps in state tax reform. I'm very proud that we helped such a productive discussion occur, and of course we're happy to help facilitate change as we press ahead.

A third broad consensus was about improving the interaction of the tax and transfer systems. We are already making major progress here, including by tripling the tax-free threshold to $18,200 on 1 July next year. This will reward hard work, especially by secondary earners. It also means up to a million extra people will be spared the inconvenience and expense of lodging a tax return. At the end of the forum I announced that our priority for personal tax is to go further and get to $21,000, when the country can afford it.

These were some of the key outcomes, but there were lots of other ideas that we will also take forward. We'll have a discussion about reform of not-for-profit concessions, and about the rules governing superannuation annuities. A new Tax Studies Institute will be a centre for research excellence into the tax and transfer system.

Many other ideas were also raised at the forum, too many to go into today. Some of these might work, some might not. I expect and hope they will be the subject of more community discussion.

A Plan for Tax Reform

So, Mr Speaker, the Tax Forum showed just how constructive and positive the policy discussion can be in Australia, when everyone comes with goodwill and the cynics and wreckers are ignored. I just wish the discussion in this place could be as constructive and positive.

The challenge for the Opposition is to put their knee-jerk negativity and destructiveness aside, and outline some actual ideas. They should look to the example of forum participants, who rose to the challenge of thinking about the national interest, rather than small-minded self interest. This means doing better than another empty slogan.

They need to do better than say "I stand for lower taxes", when their policy is for higher taxes on companies, small businesses and personal taxpayers. They need to do better than say "I stand for simpler taxes", when their position is to oppose the instant asset write-off, standard deduction, and the tripling of the tax-free threshold. They need to do better than say "I stand for fairer taxes", when their policy is to claw back $800 million per year out of the super of 3.5 million low-income earners.

But Mr Speaker, I am an optimist. So I look forward to hearing the Opposition's ideas for how the tax system can respond to the patchwork economy, how we can improve our retirement savings for the future, how we can promote workforce participation.

Today, I've outlined our plan, which does all these things, and more. It's right for the times, but it will also set our country up for continued prosperity in the decades ahead.

I thank the House and everyone who made the Tax Forum such a success.