5 October 2011

Address to the Tax Forum

Note

Canberra

Tax as social solidarity

Steve Martin once said that talking about music is like dancing about architecture.

After two days straight talking about tax design are we now at risk of line dancing around the Great Hall to the strains of Love Is In The Air?

We all know that taxes buy civilisation.

We also know that when taxes function properly - fairly, not corruptly - and are recognised by the public as legitimate, and are properly complied with, a tax system is a significant stage of social solidarity.

It is not simply that predictable and buoyant tax revenues help build the public realm - from the street scene to socialised medicine and support for people with a disability.

It is also that it embodies trust in public institutions and each other. 

I'm paying because I know you're paying.

We don't have to look too far from here to see the contrasts.

The biggest tax on ordinary workers and their families in so many developing economies, including those in our region, is corruption.

Transparency and anti-corruption actions – a properly functioning revenue system in our neighbouring rising giants – this has a huge role to play in the better economic and geo-political future of the Asian century.

In Europe today we are seeing ballooning debt, sovereign risk and austerity measures brutally dominate the public policy debate. 

In the United States, we are seeing a debate regularly high jacked from the ideological militia of the far right.

And after an unusually rugged 12 months in our on national politics I believe this Forum offers us a timely reminder that, despite the mischief making from some quarters, we are far better off than most of our contemporaries.

That we are having a sophisticated, sensible, informed and gentle conversation about the future of our tax system is testament to the truth that Australia is doing pretty well by global comparisons.  And we shouldn't forget it.

Australia is the 9th lowest tax regime in the OECD when it comes to total taxes.

We have an unemployment rate of 5.3 percent and net public debt is a touch over 7 percent.

Many of our friends in other jurisdictions would give their eye teeth for these numbers.

So one of our tasks in my view is to exchange ideas about how to improve our tax system further but not lose sight of the strengths of what we already have.

But one thing that we can do better and has been canvassed repeatedly at various sessions in the past 24 hours or so is commit to better listening and transparency and consistency.

And improving the governance of the Australian tax system is something that may substantially assist.

Personal tax reform –simplifying the system

We should recognise this Government is simplifying the system.

Traditionally, tax time has been an exercise in spending hours finding all the paperwork and then hours methodically getting the details right.

The introduction of e-tax now means that I simply log on, check that the information that the Tax Office has prefilled is right, add any additional information and tick it off.

For the mums and dads that do their own tax return, this frees up for time with the kids and for tax agents, it means more time value adding on their client's tax returns.

The Gillard Government commitment to a simpler personal tax system includes introducing a standard deduction for work related expenses and the cost managing of your tax affairs.

A $500 standard deduction will mean that from 1 July 2012, millions of Australians can throw away their shoebox of receipts and still claim the cost of their work related expenses and the cost of managing their tax affairs.

This is an important further step towards making the tax system simpler.

The Government is simplifying the personal tax system by more than tripling the tax free threshold as part of our Clean Energy Future package. 

This reform will mean up to a million low-income earners with income below the tax free threshold won't need to go to the effort of filing a tax return.

It will also improve incentives for low-income earners to work and will improve interactions with the transfer system.

We have made good progress but we are committed to more.

Governance – the right institutional framework

Of course success of a strong tax system is underpinned by an effective institutional framework.

The ATO is considered a 'world leader' in tax administration and innovation and meets the challenges of tax administration through a close working relationship with the community and a focus on compliance. 

Australia's Future Tax System Review and the Joint Committee of Public Accounts and Audit have noted that the majority of Australians have a high level of confidence in the ATO.

In my time as Assistant Treasurer I have been impressed with the professionalism and commitment of the 25,000 staff in ATO – from the Commissioner to the call centre staff. 

However it is also crucial that the ATO as the keystone of the tax system can continue to meet the challenges of the tax system now and the future.

It is this Government's belief that a tax system advisory board can add value to the administration of the tax system and enhance the reputation of the ATO as a world leading administration.

An advisory board with an independent chair would best fit the statutory governance framework applying to the Commissioner of Taxation and adds value to the administration of the tax system.

The Government should appoint members to the board and it should be constituted by members with a range of different and diverse organisational skills.

The structural effectiveness of the advisory board will of course depend on its relationship with the Commissioner and the ATO.

The board could operate as a small set of trusted external advisers with whom the Commissioner could freely discuss a range of organisational issues and who could offer the Commissioner the benefit of their diverse experiences.

Its advisory role would be independent and have a clear statement of responsibilities and accountabilities. Board members should be truly independent of the ATO and would need to manage conflicts of interest and fulfil their role in the national interest – as opposed to pursuing any partisan or vested concerns.

But it is also an opportunity to bring a level of commercial counsel to the ATO in managing its external relationships with taxpayers. 

And an additional voice for the business and taxpayer communities in relation to ATO culture.

I am interested in your views as to how such an advisory board could provide the ATO with an independent and external source of trusted advice and counsel on organisational issues. 

And how it may assist the Commissioner in adapting and best positioning the ATO to meet future challenges of administering the tax and superannuation systems.

Of course, obtaining maximum value out of any board depends as much on people as it does on structure, and it will be crucial that this board has the right combination of people with an understanding of tax, business, organisational and communication issues.

This includes the right person to take on the key leadership role of independent chairperson to provide strategic guidance on current and future challenges in tandem with the Commissioner.

I have been very impressed by the calibre of the people at this Forum that could be drawn upon to provide wise counsel for the tax system of the future.

I look forward to announcing in the near future the make-up of the board and the inaugural chairperson.

But I welcome your comments and suggestion on this important issue today.

We have a world class tax design and institutional framework, but we must be open to innovation and change – and better listening.

Tax law design

Many of you in this room are tax professionals in one form or another – whether as practitioners, academics or indeed as major users of the tax system.

And we are fortunate to also have many Treasury officials present here who in my experience are among the smartest and most professional in the Commonwealth's public service.

But I have learned in the last 12 months good tax design is fundamental to the system from the start.

Indeed, I have discovered that all too often my role requires me to strap on the metaphorical diving mask and descend below the hull of the ship called taxation to repair potential revenue leaks or address unintended consequences.

This is what I would call the 'care and maintenance' tax reform agenda that sits alongside the Government's substantial headline tax reform agenda.

Care and maintenance reflects the inherent complexity of the tax laws and difficulty in ensuring that policy intent is matched by the legislation which gives it effect.

And this work has taught me that a strong, fair and simple tax system needs involvement from those who use it daily.  Consulting with business, affected industries, tax professionals and the broader community is essential to producing efficient and effective taxation outcomes. 

And we have heard over the past two days about concerns from taxpayers – particularly in the business community and the not for profit sector – about system design issues and their potential impact on confidence in the tax system.

The Government will continue to support improvements to its tax consultation program so that tax legislation introduced into the Parliament can be administered consistently with policy objectives.

Successful tax policy design and execution comes from involving the people who will be affected by the proposed tax, especially where their focus is on what's best for the nation.

And I believe that we have an evolving record in this regard, through examples such as the MRRT policy transition group, the new R&D tax incentive which was recently passed by the Parliament, superannuation reform and the alternative fuels legislation.  All of which were developed through intensive, relentless industry consultation mechanisms.

But I am most interested to hear from you in this room as to how we might improve upon this base.

To get us started, I'd like to make some opening suggestions as to issues that the Government would like your insight on during this session.

Suggestions as to how we might establish clearer, more stable, and more certain taxation laws.

First, is there a case for the Government to make its intended policy outcomes in taxation laws clearer to the Parliament?

Currently, few provisions or measures in the taxation laws make explicit their intended policy outcomes. Some may consider that this leads to alternative views of the appropriate policy outcome in particular cases, and provides no assistance to the ATO or the courts in their search for an interpretation that promotes the policy intent of the Parliament.

Is it possible or even desirable that all new taxation laws should be drafted to make the intended policy outcomes clear to the reader, in view of the substance of the relevant transactions?  

Could this be achieved through using enhanced objects clauses to accompany relevant provisions or by utilising other legislative guidance material?

Second, can improvements be made to how Government agencies and departments interact to provide additional quality assurance mechanisms for taxation legislation and its subsequent administration?

The determination of tax policy is of course a matter for Government, and the Parliament determines the final shape of legislation. Treasury has responsibility for advising the Government on tax policy and instructing drafters from the Office of Parliamentary Counsel on implementing that policy via legislation. 

The policy and legislative design process for new tax measures currently requires that the ATO provide advice to Treasury on administration issues relating to these measures.  Is this process adequate, or could it be enhanced?

The ATO has sole responsibility for interpreting the taxation laws at first instance (for the purposes of administering those laws), while the Courts are the final arbiters.

Refining these arrangements would involve enhancing the process of developing legislation, ensuring that there is a common understanding of the intended policy outcomes between Treasury and the ATO, and then the Tax Office makes it clear to Parliament that the proposed legislation can in fact be administered in accordance with the Government's policy intent.

Finally, what is the ideal consultation process for tax policy design between Government and the private and non-government sectors?

This Government is interested in establishing a 'continuous conversation' with the end users of the tax system - consultation during policy design, drafting, implementation and post-implementation stages.

And while I believe that this Government has done more than any before it to make advances on this front, good tax law design involves seeking the views of key experts such as you here in the Great Hall.

Conclusion

Improving our tax system is not nearly so much about canvassing history, nor even grappling with the peak of the present, but it should without doubt reach out to touch the arc of the future.

We know this is the Asian century. 

We know digital information flows are changing how we do business and live with each other.

We know we are living longer than ever before.

We know we are driving on an economic highway with lanes of varying speeds. 

We know women in Australia will continue their long march through institutions of power.

And indeed we know our taxation regime has grown to be far too complicated and at times mistakes are made due to this complexity. 

Introducing a mining tax, reducing company taxes, bringing in a carbon price, giving hundreds of thousands of small business helpful tax write offs for when they want to buy new equipment, improving the governance of our taxation system.

These things touch the arc of the future.

You are all busy people.  And I know simply through your attendance here that you are reaching out for the future as much as this Government.

So, as Assistant Treasurer (something of the Minister for Tax as it were) thank you again for attending. 

And let's keep dancing about the tax architecture of the future.