13 March 2009

Speech to the Taxation Institute of Australia Annual Conference

Note

Darling Harbour, Sydney

Thank you for the invitation to be here today.

The Taxation Institute plays an important role in the national debate on tax and I welcome its constructive engagement with the Government on reform issues.

The issue of tax reform has hit the national agenda with the establishment of the Henry Review. This is appropriately so: A nation's tax system is key to its productivity and prosperity.

A tax system which distorts economic behaviour, is overly complex, and does not encourage innovation and effort will hold a nation back.

Our tax system is certainly guilty of at least some of the above. That's why the Henry Review is so important and timely and I understand Ken Henry has already addressed you in more detail on the Review.

Suffice it to say that this government sees tax reform as an important feature in the never ending economic reform process and we won't be missing the opportunity to tackle reform in a serious and lasting way.

Now that we have been in office for a little over a year, it is a useful opportunity to today review progress on the matters of tax administration that seemed to me as Shadow Assistant Treasurer were in need of reform should we be elected.

A key area identified by us in opposition was the need to dramatically improve consultation on tax changes.

I heard many stories of rushed consultation, indeed arguably cursory consultation which led me to the view that here was a strong case for a better approach because better consultation leads to better law.

In February 2008, 3 months after coming to office, I appointed the Tax Design Review Panel to examine how to reduce delays in introducing tax legislation and improve the quality of consultation on changes to tax laws.

This was a worthwhile process – 3 appointees from the private sector – Neil Wilson, Duncan Baxter and John Morgan, working with representatives of PM&C, Treasury, the ATO and of Office of Parliamentary Counsel.

The public sector representatives learnt from the private sector appointees about the practical difficulties that poor consultation causes.

The private sector appointees benefited from exposure to the constraints, requirements and sometimes the frustrations inherent in progressing changes through the public sector.

On 22 August 2008, I announced the Government's support in principle for all of the Panel's 26 recommendations with the Panel's recommendations to be implemented progressively:

  • Treasury's standard tax design process now incorporates a minimum period of four weeks for consultation, with shorter periods only in exceptional cases.
  • There has been an increase in public consultation and a corresponding decrease in confidential consultation with Treasury's website used to make consultation papers available and to publish submissions.
  • Consultation summaries are to be posted once legislation is introduced following public consultation. The summaries provide high-level feedback on the main suggestions raised in consultation and, as far as possible, where these have led to changes or why they were not adopted.
  • The Government has introduced the Tax Issues Entry System (TIES) to allow tax professionals and the general public to register issues via an online form. The focus is on correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes. This will transparently keep the public informed about progress in fixing up the law at the small "p" end of the policy spectrum.
  • On 12 February 2009, I released the Government's Forward Work Program as recommended by the panel. The program sets out the Government's planned consultation process for announced tax measures and indicates legislation it plans to introduce in the 2009 Autumn sittings. This will occur for each Parliamentary sitting period and I have received some good feedback on this initiative.

An as yet outstanding recommendation of the Panel is the recommendation that the Government consider whether it should empower the Commissioner of Taxation, in appropriate circumstances, to modify tax laws to give relief to taxpayers or whether the Commissioner could provide such concessions in a better way.

The Panel's recommendation responded to submissions that tax laws required numerous relatively minor amendments to ensure they worked as intended. Empowering the Commissioner might allow the Australian Taxation Office to be more flexible in administering the law to deliver sensible and pragmatic outcomes.

Such a proposal has advantages and disadvantages. For instance, the Commissioner may be able to quickly solve a problem by granting an extra-statutory concession rather than Parliament having to pass an amendment. However, some may view such a power as weakening the rule of law and perhaps creating more uncertainty.

I have decided to release a public discussion paper explaining the proposal and canvassing opinions.

The paper will be released during the course of this year. I'm sure the Tax Institute and others with an interest in tax law will need no encouragement to make submissions and get involved in the process.

I am under no illusions that consultation will now be perfect.

There will always be situations in which ideal consultation will not be possible. Sometimes integrity issues need to be dealt with urgently and sometimes a speedy change is required for business. There will also be obvious constraints around Budget decisions.

Notwithstanding these constraints, we have made real progress towards much better consultation.

It's been my view that better consultation has the potential to lead to quicker implementation of tax changes.

Getting the law right early, should mean that the examples of long delays between announcement and implementation can be minimised.

There are two very obvious examples that I'm very pleased we've been able to put to bed.

It was ironic that in one sitting this week the Parliament passed the TOFA Bill and the Tax Agents Bill within 2 days. TOFA stages 3 and 4 was finally introduced on 4 December 2008 and passed the house on 11 February this year. It passed the Senate on Wednesday.

When seeking the approval of the Caucus to introduce the TOFA legislation into parliament I briefed caucus that this legislation was to implement a Budget measure. I then pointed out that it wasn't a measure of the 2008 Budget, but in fact the 1992 Budget!

The TOFA process was first announced by Treasurer Dawkins in 1992. Completing the TOFA reforms was long overdue and I was determined to have this legislation introduced in 2008.

It was important to get this legislation finalised. TOFA represents a complete rewriting of the taxation of Australia's financial arrangements and important modernisation of the tax rules that apply to financial arrangements which have not kept pace with the financial sector.

The bill has benefited from very extensive consultation with industry and professional associations and is much anticipated in the business sector. One of the results of this consultation which has been very extensive over the last 12 months was the government's decision to implement a soft and hard start date.

However, the Government recognises that this is a complex issue and there are likely to be fine-tuning issues that arise, but, having had this around since 1992, I took the view that there was no good reason to delay any further, the time for talk had finished and further issues can be worked through in the implementation stage.

The Tax Agents Services Bill represents a long overdue modernisation of the legislative frameworks for the taxation profession.

The vast majority of the issues which at one stage looked like they would be controversial have been settled during consultation over the last few months and I am pleased to see the Bill pass through the Senate yesterday.

Can I thank the Institute and all the other stakeholders for the way in which they engaged with me, my office and the Treasury in sorting through issues associated with this reform.

On 12 February 2009, the exposure draft Tax Agent Services (Transitional Provisions and Consequential Amendments) Bill 2009 and associated explanatory material were released for six weeks of public consultation.

This version provides the full set of transitional and consequential amendments related to the Tax Agent Services Bill 2008. It includes two 'safe harbour' provisions. These exempt taxpayers from liability for an administrative penalty for certain mistakes and omissions where the error is solely due to their agent's lack of reasonable care.

In line with our new consultation arrangements, all interested parties are encouraged to visit the Treasury website to view the materials and, if necessary, to raise issues in their submission to Treasury.

Today I also announce that the Government is taking the next major step on another long awaited reform - to consolidate the tax secrecy and disclosure provisions.

Today I'm releasing the draft Bill and explanatory material for public consultation relating to confidential use of taxpayer information, a project that has been underway for a couple of years.

This tax secrecy package proposes to consolidate tax secrecy and disclosure provisions that are currently found across 18 different taxation laws.

By consolidating these provisions into a single framework, the tax secrecy package will:

  • overcome inconsistency in the treatment of taxpayer information caused by the different drafting styles of the existing tax secrecy and disclosure provisions;
  • provide greater transparency regarding the use of taxpayer information; and
  • simplify the taxation law.

Changes to the current legislative framework will ensure compliance with tax laws is not compromised because taxpayers believe their information could be, or is, readily disclosed to other government agencies.

A key principle of the new package is the ongoing protection of taxpayer information. The package proposes that disclosure of taxpayer information will only be permitted where the public benefit of disclosure outweighs the loss of taxpayer privacy.

The proposed package maintains the substance of existing disclosures and proposes some new disclosure provisions. For example, the new framework would permit law enforcement agencies to use taxpayer information in prosecuting a serious offence. Currently, taxpayer information may only be used to prosecute a tax-related offence.

Again, I would encourage you to get involved in this process.

I know that Ken Henry talked to you about the need to simplify the tax system. This is one of the great challenges.

In terms of tax administration, I have the view that there is no justification for having two long tax Acts. The challenging question is: what to do about it.

The Income Tax Assessment Act 1997 was enacted as a first step in the Tax Law Improvement Project to rewrite the Income Tax Assessment Act 1936 but unfortunately, the project was never completed, leaving us with two Acts and ongoing concerns about the complexity this causes for taxpayers and tax practitioners.

Transferring the remaining sections of the 1936 Act to the 1997 Act, with the appropriate redrafting to reflect the language of the 1997 Bill is a task which we should begin to tackle with a definite view to finish the job. I don't underestimate the size of the task – there area still in excess of 1900 pages of legislation in the 1936 Act – nor the difficulty. There will be hurdles, but with leadership from government and engagement from the profession a single tax Act can be achieved.

Later this year the Government will release draft rewrites of several schedules of the 1936 Act and their transfer to the 1997 Act.

This will include schedules 2C, 2D, 2E, 2G, 2J and Divisions 8, 9, and 10 of Part VI of the 1936 Act.

We will continue to transfer large sections of the 1936 Act to the 1997 Act as part of our ongoing reforms, including in response to Board of Tax reports. Then there are the reforms that will arise out of the Henry review which may address the some of the big "P" policy issues embedded in the legislation.

The response to the Henry Review is for the future and we are acutely aware that there many, many challenges facing us all at present which could throw up other reform priorities. So, I do not want to set a definite

timetable for the amalgamation of the two Acts. Such timetables have been set before, only to lead to disappointment.

We do, however need a goal, an aspirational date, by which we would like to see the acts amalgamated. I believe that 2013 is an ambitious, but achievable, target for Australia to have one tax act.

To conclude, can I again thank you for your engagement with our substantial reform program over the last 12 or so months.

The combination of reviews that have been referred to the Board of Tax, the Henry review and the need to respond to the deteriorating economic situation will mean that the reform program over the next 2 years is likely to be even more substantial. I look forward to engaging with you as part of that process.