Thank you for inviting me here today to speak to you.
It is with great pleasure that I speak to you today as lawyers in the tax field who deal everyday with complex and ever changing tax laws.
It is practitioners like you, and your colleague accountants who understand best the frustrations, inefficiencies and difficulties that arise when changes to the tax law are not handled as well as they can be.
It didn't take long after I became Shadow Assistant Treasurer in December 2006 for me to come to the view that there were two main priorities in the improvement of tax administration and tax law changes - better consultation on proposed tax changes and faster implementation of announced tax changes.
I am firmly of the view that better and earlier consultation on proposed tax changes would lead not only to better law, but to smoother passage through the Parliament and quicker implementation of the law.
Legislation by press release - the Government announcing general intentions and detailed legislation only being introduced 2, 5 or 15 years later is bad practice and leads to investment uncertainty.
The difficulties created by poor practice were brought home to me by 2 cases that were issues during my time as Shadow Minister.
The section 128F interest withholding tax exemption changes that had to be withdrawn because of lack of consultation and the inordinate 5 year delay in the introduction of the section 51AD changes.
Accordingly in opposition we made a commitment to appoint a small panel of private sector practitioners to advise the Government on the best way to improve consultation and reduce the amount of time that it faces to implement announced changes.
In February I announced the appointment of Mr Neil Wilson of PWC as Chair of the panel and Mr Duncan Baxter of Blake Dawson and John Morgan of the Victorian bar as members of the panel.
I also asked representatives of the department of PM&C, Treasury, the ATO and the office of Parliamentary Counsel to sit on the panel.
This was a very worthwhile process - I think the public sector members of the panel gained a heightened appreciation for the frustration caused by short consultation periods and long delays in implementation. Likewise, the private sector representatives gained an appreciation for the constraints and frustrations experienced by public servants attempting to streamline the system.
And can I say how impressed I was with the willingness of officials from the Treasury and the other agencies to embrace a new way of doing things.
Officials want a better system no less than anyone else and, given the signal from Government that we are willing to introduce more transparency to the process of making tax changes, officials were keen to improve the process.
I'm pleased today to be releasing the Wilson review and the Government's response. The Government is accepting each of the report's 26 recommendations.
The Wilson review was asked to examine:
- options to reduce the delay between the announcement of proposed changes to tax laws and the introduction into Parliament of associated tax legislation;
- how the quality of the law can be improved through enhanced community consultation, particularly in the development of tax policy changes prior to the announcement of specific changes; and
- methods to increase community input into the prioritisation of changes to tax laws.
The report makes a series of practical recommendations aimed at reducing delays and improving the tax design process.
I have asked Treasury to commence implementation of the recommendations.
Consultation
From now on, the Government will seek to consult on tax changes at both the policy design and legislative development stages. Each of those consultations should last for at least four weeks. The Panel recommends that the early consultation include engaging paid private sector advisers which will have benefits for the quality of tax law. In the case of substantive tax changes, a tri-partite team led by the Treasury should be established including tax officers and private sector experts which has carriage of the measure throughout the design phase.
Of course this does not mean that the Government will abrogate its policy responsibility or its responsibility to consider budgetary or policy matters in confidence. But when it comes to the detailed design of these measures, we would benefit from earlier and better consultation.
Improved consultation at the earlier stages of tax laws changes will result in better law.
Transparency
A major theme in the Panel's recommendations is for greater transparency in the tax design process.
The Panel believes that taxpayers want to know what's going to happen and when.
- They recommend including more detail, via a separate Treasury document, about a measure when the Government announces it.
- They propose posting on a public website a summary of the issues that arose in consultation, once the legislation is introduced.
- They believe the Government should publish a forward work program setting out what legislation it plans to introduce in the next sittings and commit to providing reasons for any delay that happens.
- They also want the Government to review periodically any announced measures that have not been enacted and set out its position on each of those measures, starting with the unenacted measures announced by the previous Government.
- They think the Government should endorse the Tax Issues Entry System ('TIES') previously recommended by the Board of Taxation under which the public could raise care and maintenance issues about the tax law.
Treasury already publishes a report three times a year that lists all tax measures and a broad statement on the consultation approach adopted for each measure but the forward work program will provide more detail about the consultation timetable for each measure.
The program would also indicate which legislation was planned to be introduced in the next parliamentary sittings to provide more timely information on tax legislative programming.
Although PM&C already publishes the Government's plan for introducing legislation ahead of each sittings, the new timetable the Panel proposes will be more detailed, published earlier and would involve the Government providing reasons for any delays that arise. The new forward work program will set out the consultation it plans for announced tax measures and indicating the legislation it plans to introduce in the next sittings.
I have asked Treasury to closely examine the TIES proposal.
Introduction times
In light of the panel's recommendations on introduction times, The Government will aim to introduce legislation for its tax changes within 12 months of announcing them and increase transparency by publishing a forward work program of announced tax measures.
The panel recognises that there will be occasions where retrospective measures are appropriate, and recommends that the Government aims to introduce legislation within six months of announcement and that it may be necessary to reduce the time allowed for consultation.
Post-implementation reviews
The Panel proposes that the tri-partite team it recommends for developing tax measures should also monitor the early implementation of the measure, identifying any legislative refinements needed and ensuring that the ATO has provided appropriate administrative products and guidance material. It also proposes that the Government ask the Board of Taxation to conduct more post-implementation reviews of measures than it does now.
Commissioner ability to modify the law
The Panel received a suggestion during consultation that the Commissioner of Taxation should be given power to modify the application of tax laws as he sees fit to make them conform to his understanding of Parliament's intention. The Panel did not have time to examine the suggestion in detail but believes the idea should be further investigated.
This is something that the Government will consider. I have asked Treasury to report back to me on this. I note that similar powers have been granted to ASIC and APRA and the Inland Revenue Commissioners in the UK are able to publish a list of 'extra-statutory concessions', despite not having a formal legislative power to grant such concessions.
Following up the review
The panel recommends that a mechanism be established to drive implementation of the new process. The Government will task the Treasury with ensuring that the recommendations are implemented with the close involvement of the Chair of the Panel, Mr Neil Wilson.
In line with the panel's recommendation, the Board of Taxation will review this new process 2 years after implementation. Two years will be a sufficient time to assess whether or not the system is working and to ascertain what refinements might be necessary.
Ofcourse, as the report itself recognises, there will be times when our aim of better and earlier consultation will not be met - when urgent tax integrity issues arise or when Budget measures need to be legislated quickly. However, the plan we are announcing today means that these should be very much the exception.
Likewise there will be times that unexpected complexities in drafting arise or the Government's heavy legislative program means drafting resources or slots in the parliamentary program are scarce. But as a whole when the Government announces a change to the tax law, the days of waiting years for announced tax changes to be implemented should be a thing of the past.
No one is under any illusion that these changes will be always easy to implement or will be a panacea but they present a very clear improvement on a system which has needed improvement for a very long time.
I look forward to implementing the new consultation process which will make Australia a world leader in consultation and improve our tax laws to the benefit of all Australians.
I would like to thank the various stakeholders who took the time to make submissions to the Panel or attend consultation meetings.