I am delighted to be delivering the keynote address to you today.
As Minister for Revenue and Assistant Treasurer, I find the title of this year's Convention, "A Capital Idea - Getting Back on Top of Tax" particularly pertinent to the new ministry.
As Minister for Revenue and Assistant Treasurer, I have been charged with overseeing the revenue base of the tax system. This extends beyond specific `tax issues' and goes to the heart of the Government's budgetary framework - helping to ensure the Government is in a position to fund those programmes and services we see as vital to the social fabric of the nation.
Tax revenue delivers the services and infrastructure necessary for health, education and welfare. We also need it to provide infrastructure for our businesses and to meet the needs of an ageing population.
But we need to do so in a way that supports the way of life of Australians and does not unduly reduce the ability of our companies and people to compete for global as well as well as local success.
This is big picture stuff, and something that is easy to lose sight of, but it is vitally important.
What this demands is that I consider the issues before me, not just from the perspective of the group or sector advocating the proposal but from a national or whole of community point of view. That is, at the end of the day, my role is one of making a judgement in the public interest and taking account of the tradeoffs of different approaches and options.
It is important to understand this fundamental role. And perhaps this is where the title of the Convention, `A Capital Idea' does have real significance to my remarks - because it is my role and that of my parliamentary colleagues on the Hill to make these decisions in the interests of the good of the community as a whole. And it is we who become accountable for them.
Within that framework, I believe I can make a contribution to the way the tax system works. It can and needs to work better.
The reform of the tax system introduced over recent years has been one of the biggest in our history. It has delivered a fairer and more robust tax system.
But change is never easy.
The tax system is a part of the lives of all Australians and all businesses operating in Australia.
Taxpayers are entitled to a system in which they pay no more and no less than required by law:
- Where the obligations are clear and the process is fair;
- Where complying with the law does not overly intrude into taxpayers way of conducting their business or their financial affairs.
It is in this context that I see my three most immediate priorities on the tax front as:
- Considering ways to improve the efficiency and effectiveness of tax administration, including through setting up the Inspector General of Taxation;
- Implementing the Government's remaining business tax reforms arising from the Ralph Business Tax Review, including the introduction of the consolidation regime for company groups; and
- Designing and implementing the superannuation and other tax initiatives outlined by the Government during the election campaign.
Tax Administration
A particular priority is improving tax administration - or more specifically the interaction between taxpayers and the taxation authorities.
This isn't simply a matter for the Commissioner - it is a wider task.
It is about getting the various aspects of the system better aligned and better focussed.
And better communication is essential - in several respects.
We can start by making sure that the voice of the taxpayer is heard and understood.
Indeed I want consultation with taxpayers to be the hallmark of tax administration.
To this end, since my appointment I have been meeting with business and community groups to garner their views on a wide range of tax administration issues. This I am finding both interesting and helpful.
I launched last month a comprehensive consultation round in respect of the consolidation regime, with the aim of ensuring the best quality legislation we can achieve - hopefully leading to as few surprises as possible once it comes to administering the new regime.
Getting legislation correct in the first instance is a big bonus for its later administration.
So is the development of the supporting tax systems.
This requires the better understanding of community needs at design stage. And the Commissioner's recent announcement of a new in-house team to develop co-design processes enabling the ATO to better gather community views is an important step in this regard.
These are all positive developments.
I will also be taking a close interest to ensure that legislation, once formulated is then administered in accordance with Government policy intent.
This does not mean `second guessing' or undermining the Commissioner of Taxation - far from it. The Commissioner's ability to independently deal with taxpayer issues is crucial to the integrity of the tax system.
However, at the same time, a government is accountable to the people for `the system'.
And a government must be able to determine not only the specific tax policies that comprise it, but also the broad administrative frameworks that operate it.
It was this thinking that led to our announcement in the election campaign to create the Inspector General of Taxation.
The Inspector General of Taxation
Whilst the Government has yet to consult on the specific role of the Inspector General, I see this role providing a source of independent advice to Government on tax administration policy, with particular focus on improving the efficiency of the system and reducing compliance costs.
The Inspector General of Taxation will focus only on the tax system. Other agencies, such as the Australian National Audit Office and the Ombudsman, have a role in reviewing the administrative arrangements of all Commonwealth agencies.
Therefore, the Inspector General will become an extra `check and balance' for the ATO.
The Inspector General will consult with industry and the community to understand their key concerns with tax administration, and advise the Government accordingly.
I will be releasing soon a consultation paper on the possible role, responsibilities, and operating framework of the Inspector General; and the Board of Taxation will undertake a broad public consultation process.
The consultation paper will look at issues such as reporting, accountability and governance arrangements, as well as relationships with other agencies involved in the tax administration system or policy advising - including the Ombudsman and the Board of Taxation.
I encourage you to provide submissions.
Most importantly however, this new arrangement will reflect a more active consideration by the Government of tax administration issues and how they impact directly on taxpayers' lives. Therefore, my goal will be to work closely with the Commissioner without impinging on his independence. This will involve exploring how we can refine the delivery of tax administration to simultaneously achieve revenue security without overly intruding on taxpayers to meet their compliance obligations.
Can I now turn to business taxation.
As I have mentioned, the taxation system impacts on all businesses operating in Australia. It plays a crucial role in creating the right environment for business to operate and compete. And that doesn't necessarily mean through the provision of tax incentives. The role that tax policy and good tax administration plays in supporting the general economic framework within which business operates cannot be understated.
The past three years have seen one of the most substantial reforms to the Australian tax system on record.
The Government has:
- revolutionised Commonwealth-State funding by introducing a broad based indirect tax system with guaranteed revenue to the States;
- cut the company tax rate from 36 to 30 per cent - a highly competitive rate internationally;
- cut capital gains tax for individuals, and provided capital gains tax relief for start-up and innovative enterprises;
- had financial institutions duty and stamp duty on most share transactions removed;
- introduced integrity measures, including alienation of personal services income, thin capitalisation and non-commercial losses provisions;
- implemented the Simplified Tax System, which will ease the compliance burden and reduce tax for small business taxpayers; and
- implemented the Uniform Capital Allowance Regime which has simplified the tax law by streamlining the tax treatment of depreciating assets.
Your President, Alice McCleary, was part of John Ralph's task force that developed the package of recommendations on business tax.
By any stretch of the imagination, these initiatives alone represent a significant commitment to make Australia's tax system work better.
The new arrangements deliver a modern, competitive and fair business tax system.
I congratulate business for the way it has gone about the task of adjusting to these changes.
However, as a government and as a community, we cannot be complacent - we need to remain on our toes and not be caught flat footed. This means there is more to do.
Several of the Government's business tax reforms remain to be completed - and I am keen that this be done in an orderly manner to allow business - and its advisers - time to keep pace with the adjustment process and, as part of that, allow existing reforms to be bedded down.
Consolidation
A major component of the Business Tax Reform package is the consolidation regime - which will take effect from 1 July this year.
Under consolidation, wholly owned corporate groups will be able to elect to be treated as single tax entities for income tax purposes.
Consolidation recognises the need of business for tax arrangements which provide increased commercial flexibility, particularly in relation to group restructuring, such that assets can be moved freely between group entities without attracting tax consequences.
The consolidation regime will deliver on this need.
It will simplify tax reporting obligations and deliver substantial tax and other ongoing cost savings for consolidated groups.
From the broader community's perspective, ignoring intra-group transactions for tax purposes will address opportunities for tax avoidance through artificial arrangements between group members. For business, this will mean lower compliance costs as intra-group transactions will be outside the scope of complex anti-avoidance rules.
The Government is working hard to ensure a smooth transition to the new regime.
The current consultation process allows business to co-design the legislation that is being developed. Business will also have the opportunity to road test the legislation before 1 July 2002.
Following earlier consultations, the Government will facilitate entry by allowing groups to elect to consolidate up until the time they lodge their first tax return.
In addition, the range of structures that can be accommodated within consolidation has been broadened, particularly in relation to groups with international operations. These policy changes were included in the exposure draft material that I released in February.
Since the release of Consolidation exposure draft material there has been an intensive programme of public consultation in each State and Territory, including regional locations. More than 460 persons registered for these sessions. The last of these forums is being conducted today in Adelaide and Perth.
Issues raised in public forums, consultation focus groups, in which the Taxation Institute participates, as well in written submissions, will receive urgent consideration.
I am aware that taxpayer groups are seeking a number of design modifications to the consolidation regime. I expect to be in a position to announce any further changes very shortly.
Initial legislation for the measure will be introduced into the Parliament in the upcoming Winter sittings.
Measures in relation to value shifting and demergers will commence at the same time as the consolidation regime and be part of the initial legislative package.
The general value shifting regime will apply to arrangements and dealings involving related entities that are not part of the same consolidated group.
The new regime will replace existing piecemeal and complex provisions that deal with certain types of value shifting arrangements.
The demergers provisions will provide tax relief to entities that are seeking to adopt an appropriate business structure. Business re-organisations can only provide overall benefits to the economy if taxation arrangements are not a hindrance. A series of consultations with industry and practitioners on the details of the legislation will commence shortly, with legislation introduced into Parliament in May.
In addition these measures, I also anticipate shortly to be able to make announcements on other business tax reform measures, including:
- Simplified Imputation;
- A revised treatment of life insurance policyholders; and
- Leasing and TOFA.
Tax Value Method
A number of business tax measures have been referred to the Board of Taxation for further development and consultation. This includes work on the Tax Value Method (TVM).
As you know, the Board of Taxation has begun a final round of consultations through the release last week of TVM `demonstration' legislation and products such as explanatory material and potential tax calculation methodologies.
The Board is now seeking submissions prior to providing advice to the Government by the end of June. I trust that the Tax Institute will be making a detailed submission.
Without prejudicing the Government's decision on the TVM, on which we continue to have an open mind, I think it is now clear that if TVM does go ahead, it will not be possible to implement it from July 2003. Indeed, in view of the major change that it represents, it would be some years beyond that before it could be implemented.
The Board of Taxation is also considering the problematic uses of trusts and possible remedies to any abuses identified. I expect to receive a report from the Board by the middle of this year.
I note that the Chairman of the Board of Taxation, Mr Dick Warburton, will be speaking to you tomorrow morning and will no doubt enlighten you further on the work the Board is undertaking.
International tax
There is a continuing role for taxation reform in maintaining and improving Australia's international attractiveness as a place in which to live and to do business.
Examples of recent Government reforms include:
- The recent renegotiation of the double tax convention with the USA. As a result of this, withholding tax on a large part of dividends paid from the USA will be removed. The Protocol is a major step in making possible a competitive and modern tax treaty network and will significantly aid trade and investment flows between the two countries.
- Negotiations are continuing with the United Kingdom to update our existing double tax agreement.
- We have also sought to further improve arrangements for venture capital investment in Australia by broadening the existing venture capital non-resident CGT concession. The Government proposes to provide venture capital limited partnerships with flow-through taxation treatment from 1 July 2002.
- And importantly, we are in the process of removing a number of income tax impediments to attracting highly skilled workers to Australia from around the world. These impediments relate to the treatment of foreign source income and the application of CGT and foreign investment fund rules in respect to expatriates.
The importance of building on these areas is further emphasised by the Government's announced review of our current international tax regime. That review will focus on issues that affect the decisions of businesses to remain in Australia or locate here in preference to other countries.
Thank you again for inviting me to deliver this keynote address.
I know that many of the sessions you will attend at the Convention will cover in detail some of the issues I have raised.
It doesn't take me to tell you that taxation is a challenging and hard business. Albert Einstein is reported to have said "the hardest thing in the world to understand is income tax!" It has also been said that tax experts typically belong to three personality types:
- Zealots who believe all the rules. In the Middle Ages they would have been theologians.
- Machiavellians who plan complicated ways around the rules and are regarded as heretics by zealots. In earlier times they would have been burnt at the stake.
- Pragmatists who negotiate practical solutions to tax problems. This is much the smallest group and should be cherished if you are ever fortunate enough to meet one.
You, the key members of the tax profession, have to a large extent been the interface between the Government's reform programme and the taxpayer community. Advising them, and contributing to the broader debate about tax reform - and both at the same time. This has been a big task, and your efforts are to be commended.
On a personal note, I want to thank the tax community for the generous way in which many of you have welcomed my new role.
I mentioned earlier that, as we go forward, we can help each other in the delivery of a better tax system. Together we can achieve significant reforms. I have already, as part of my `getting to know you', talked with the TIA. I expect our relationship to continue as it has begun as one of frank and productive engagement.
Thank you.