I am delighted to speak at The Sydney Institute this evening. I want to share with you the nature of the challenges that confront my portfolio responsibilities as Minister for Revenue and Assistant Treasurer.
In the same way that the September 11 attack has shaken our feelings of physical security, the problems of Enron, HIH and the Independent Insurance Company in the UK have cast shadows over the system of financial and corporate management. It is essential to ensure and reinforce that in its areas of responsibility the Government maintains a strong and healthy corporate world.
The areas I want to talk about tonight impact on the lives of every Australian. Taxation, superannuation and insurance lie at the heart of every Australian's private and corporate well-being.
These are the areas, which are shaping as important elements of the Government's agenda for its new term in office.
I am committed to maintaining a sound tax base, a safe super system and a functional insurance industry for all Australians.
In setting priorities and directions for the portfolio, I want to start by acknowledging the economic achievements of the Government to date. The reforms to the taxation and financial system have provided a launching pad for the work that lies ahead in continuing the momentum for reform.
Australia in a Global Environment
Within an uncertain global environment the Australian economy has demonstrated remarkable resilience and flexibility. Of the 15 developed countries covered by The Economist's February survey, Australia is expected to lead the field in 2002 with growth of 3.3% - with forecast growth in other countries not expected to exceed 2%.
This is no fluke. With a steady hand at the wheel Australia has been guided through some of the most economically uncertain times since the great depression - firstly, by repairing the economic damage caused by 13 years of Labor in Government, secondly by weathering the 1998 Asian economic crisis and thirdly, by continuing to grow the Australian economy in the face of global downturn.
This sound economic management is delivering benefits that are having a positive impact on the lives of all Australians. For example -
- some 948 ,700 new jobs have been created since the Coalition came to office in 1996;
- interest rates are now at their lowest level in three decades with Australian families now paying $370 per month less on a benchmark mortgage of $100,000;
- we have delivered $12 billion in personal income tax cuts;
- slashed the corporate tax rate from 36% to 30% - a highly competitive rate internationally;
- abolished FID and halved capital gains tax for individuals; and
- created a modern tax system.
These of course are just some of the highlights.
This list is not simply a meant as a testament to the Government's success, but rather a platform on which to build further reforms.
Civilising globalisation is one of the great challenges of Government. As the Prime Minister outlined a few weeks ago in New York at the World Economic Forum, it is important that Governments continue to make the case for globalisation and do a better job of selling the benefits of free trade, economic, fiscal and tax reforms.
Experience has shown us that open markets, trade liberalisation and economic growth is boosting the living standards of the world's poor.
During the 20th century the poorest quarter of the world's population became almost three times richer. Over the past 30 years 70% of the population of developing economies have experienced sufficiently fast growth in real per capita GDP to converge towards growth levels in developed economies.
But clearly globalisation does not lift all boats. Globalisation has also thrown up a number of challenges for nations around the world. Firstly, to ensure this wealth can be equitably shared, by lifting trade restrictions and giving poorer countries greater access to international markets. Paul Kelly made this point fairly starkly in The Australian (6.2.02) recently, pointing out that the EU subsidises its cows at the cost of $1 per day, which is the same income as the worlds' poor!
On the regulatory front we are faced with the realisation that significant changes in business practice, technology and communications present new challenges for Government.
The collapse of Enron has been described by some commentators as having a greater impact on the US economy than the events of September 11. The apparent systematic concealment and subsequent failure of regulatory safeguards has thrown into question the fundamentals that underpin the regulatory systems in developed economies throughout the world.
It throws up lessons for Australia, and in particular, for the critical portfolio responsibilities I have for taxation, superannuation and prudential supervision.
This is because the essence of the market driven system rests on successful corporations and entrepreneurial drive. Good corporate governance and in particular the system of accounting is fundamental for maintaining that confidence. It allows both superannuation funds and private investors to make investments that allow corporations to progress.
The collapse of Enron, HIH in this country and the Independent Insurance Company Limited in the UK have each demonstrated fragility in the system that will need to be addressed. The Royal Commission into HIH is in progress and it would be inappropriate for me to comment, t0 preempt its findings or to foreshadow changes that may follow from its recommendations.
Against this backdrop there is a particular edge to assuming responsibility for taxation, superannuation and prudential frameworks. This is because good governance, transparency, true and fair accounting, adherence to industry standards and an effective regulatory framework provide the infrastructure that underpins the efficiency and safety of taxation, superannuation and insurance.
In announcing a dedicated Ministry for Revenue the Prime Minister identified the need to have a greater focus on tax administration - that the system has to be made to work effectively, consistently with taking into account privacy provisions and the statutory independence of the Commissioner.
I see three dimensions to the challenge of keeping the tax system running - better!
- Ensuring that the tax reforms to date are effectively implemented and bedded down;
- Delivering on our other tax Election announcements; and
- Importantly, examining the way the tax system operates -including the tax design process its administration - and considering how it can best operate in the fairest way possible.
Implementing the Government's announced portfolio policies will be my first priority.
This includes continuing the momentum for business tax reform. As part of this programme we will deliver on outstanding recommendations from the Ralph Review of business tax and revitalising the relationship between the ATO and taxpayers, particularly the business community who have risen to the challenges of The New Tax System with remarkable resilience.
Equally, the Government has learnt some real lessons from this reform process. Part of my new role is to examine how we can better engage the business community in the development of policy and legislation, and how we can strengthen business and community confidence in the taxation system.
The importance of maintaining a fair and efficient tax system can hardly be overstated.
Taxpayers are entitled to a tax system in which they pay no more and no less than required by law, where their obligations are clear and the process is fair.
In the past, logic and taxation have not always been closely aligned. This disconnect prompted Mark Twain to say that the only difference between a taxidermist and a tax collector is that a taxidermist only takes your skin!
My objective is to ensure we have a tax system suited to the 21st century, to create the settings for an internationally competitive economy, higher growth, more jobs and improved savings.
The platform to create these settings is a sustainable revenue base that can deliver the services and infrastructure necessary to educate our children, build our businesses and to meet the emerging needs of an aging population, not only concentrated in the cities but in scattered populations across our vast continent.
The Government's broad-ranging reforms to indirect, personal and now business taxation (which is a work in progress) and the announcement of a review of international tax continue the biggest tax reforms this country has seen.
I acknowledge the role of the Prime Minister and Treasurer in delivering a generational change in the face of the Labor Party's relentless campaign against tax reform. Labor's cynical resistance has spanned much of the life of the Howard Government, without advancing an alternate policy or a plan or even a positive suggestion for reform of a ramshackle system.
My goal is to secure a tax administration system that is not only fair to all the stakeholders, but also sufficiently transparent to permit legitimate concerns to be aired. For this purpose, I have been given the task of making the institutional changes that will allow a new platform for taxpayers concerns to be addressed through the establishment of an Inspector General of Taxation.
Inspector General of Taxation
There are fine but important distinctions to be drawn in the roles and functions of the Minister for Revenue, the Inspector General and the Commissioner of Taxation.
The statutory independence of the Commissioner of Taxation and the privacy provisions protect the Office and individual taxpayers from the potential for direct political interference. That is as it should be. It is an important safeguard.
However despite several points of review in the system, including the Courts, an Ombudsman largely engaged in individual dispute handling, a Board of Taxation charged with providing additional business insight to the Government, the Australian National Audit Office whose scrutiny provides a snapshot of the Australian Taxation Office's performance and even the scrutiny of Parliament, there are complaints that the ATO is largely unaccountable for day to day administration and in its dealings with taxpayers.
I believe the working relationship between the Tax Office and particularly the business community can be made stronger, more transparent and responsive. This will entail further consideration of the structures and governance practices of statutory authorities and office holders, with particular focus on those that impact on the business community.
In part, what is required to meet this need is an Inspector General who can identify the systemic problems in tax administration and deal with issues promptly as they emerge. The hallmark of the Inspector General should be responsiveness.
The Inspector General may, for example, be charged with examining and reporting on difficulties in the self assessment system, the processing system, the Rulings system, audits, penalties and interest and impacts on classes of taxpayers to mention a few.
The powers and scope of the role of the Inspector General are still under consideration and will be subject to public consultation. The role and relationship of the Inspector General to the Board of Taxation and the Ombudsman will also need to be carefully defined.
However an essential feature of the Inspector General must be the right to access taxpayer information in appropriate circumstances and inquisitorial powers to call for documents and to require the giving of information by the ATO.
The Inspector General will need to be a tough, independent watchdog - an advocate for the ordinary taxpayer - able to "cut to the chase" and engage in more effective conflict resolution, and to bring problems that need to be addressed to the attention of the responsible Minister.
It is not the role of the Inspector General nor the Minister to be second-guessing every decision the Commissioner makes. That would be untenable. Rather the relationship between the Inspector General, the Commissioner and the Minister should be one of checks and balances that makes the ATO accountable in its dealings with taxpayers.
I envisage that the Inspector General will also perform a targeted role in more effectively addressing complaints and concerns of the business community, particularly between small business and the Tax Office.
The timeframe for the implementation of the Office is a robust one this calendar year. I expect in the very near future to have a fully developed proposal to the Board of Taxation to undertake broad public consultation.
The legislative framework for the Office will be introduced into Parliament in the spring sittings and, the Senate willing passed in sufficient time to allow the Inspector General to be installed as promised by the end of the year.
Role of ATO
But of course improving accountability and effective Ministerial oversight of the Australian Taxation Office is but one step in the process of creating a tax system for the 21st century.
In fairness it must be acknowledged that the ATO has had to cope with large scale changes in a short time frame. This has placed considerable strain on its numerous systems. The upshot is that that there is now both a need and opportunity to examine ways to make tax administration easier for business and more user friendly for taxpayers.
This week, for example, the Commissioner of Taxation announced a new in-house team to develop a co-design process to enable the ATO to gather community views and develop approaches for better designing the tax administration system.
There are many issues to tackle.
One of the concepts to explore with the business community and the ATO is how compliance can be made less onerous for low risk taxpayers.
Should low risk taxpayers have to undertake the same level of compliance as those who pose high risk to the revenue?
Can systems be developed that, for example, would eliminate the need for taxpayers to duplicate extensive records; are there cases where bank accounts would constitute sufficient records for tax purposes?
Another pertinent question is what is the core business of the ATO? What changes can be made that would allow it to fulfil its main function of administering the tax system and collecting the revenue?
Having primary responsibility for the detailed design and development of legislation, administration and compliance systems may not be the best way for the Australian Taxation Office to meet its core obligations. Some commentators have argued that having the drafting function located in the Tax Office may prove a distraction from the ATO's primary task of collecting the revenue.
While I have no settled view on the merits of shifting legislative responsibility from the ATO, the idea certainly deserves further consideration.
Moving ahead with Business Tax Reforms
Continuing the fundamental reforms of the Australian business tax system is one of the key legislative priorities in my programme.
First cab off the rank in these initiatives is the Consolidation regime that I announced recently. This important measure is expected to deliver one billion in tax savings to businesses over the next three years. It will allow intra group transactions to be effectively ignored for tax reporting purposes and will facilitate business reorganisation involving asset transfers.
Significant though the substantive measure is, the early release of the exposure draft confirms my commitment to continuing the process of consultation that I propose to follow with all possible major tax initiatives. The concept is to ask business to co-design the legislation by releasing it in a draft format with a users guide and opportunities for businesses to participate in a `road test' before new laws are introduced into Parliament.
Co-design recognises the importance of giving users in an early and at the systems development phases rather than after the detail becomes embedded in the law.
Through effective consultation at an early stage, the tax laws will be more responsive to the needs of business. Importantly, I believe it represents a new step forward in the partnership between Government, business and the community in having a workable tax framework.
The Government is also committed to continuing the programme of business tax measures. To date we have delivered on our commitments to cut personal and company tax rates and halve capital gains tax. We have introduced a simplified tax system for small business, a uniform capital allowances system, thin capitalisation rules and a debt-equity test.
I will be making a further announcement about the rollout of the rest of the business tax measures in the near future.
Securing Australia's Prosperity
The Government announced a number of important tax initiatives during the campaign aimed at enhancing Australia's international competitiveness.
The Government will also undertake as a matter of priority a review of our current international tax regime.
An important part of the Government's ongoing consideration of business tax reform will be its review of international tax arrangements, particularly as they affect the decisions of business to locate in Australia and attract foreign capital.
The goal of undertaking such a review is to make Australia a more internationally competitive place to do business and to attract investment.
Can I say in undertaking these initiatives I am acutely aware of the efforts businesses and the community have made to date to meet the changes brought about by The New Tax System and the first tranche of business tax reform. We have learnt much from this process and are conscious of the need to avoid `reform fatigue'. However we must continue the reform process.
As part of the process I acknowledge the role of the Board of Taxation under the Chairmanship of Dick Warburton.
The Board has currently under consideration the Tax Value Method and the treatment of trusts. Careful consideration will be given to the Board's recommendations and there will be ample opportunity for consultation.
The rollout of further measures will be done in partnership with business to ensure they have time to understand, to comment and to prepare for any change.
Superannuation is a challenging responsibility. It provides me with the opportunity to make improvements to the system from a well-established and strong base.
The super system plays a central role in the Government's overall retirement income policy. The objective is to achieve a higher standard of living in retirement than would be possible from the aged pension alone.
Superannuation is one of Australia's growth industries, covering about 98% of traditional employees, about two-thirds of self-employed people, and since this Government came to office superannuation assets roughly doubled to $502 billion in September 2001.
After housing, superannuation is the most valuable asset owned by Australians. Superannuation is also an attractive tax effective way to save. Super contributions remain more concessionally treated than if they had been received as salary or wages and were taxed at the top marginal tax rate.
The safety of superannuation is an important focus with possible options for reform being examined by the Superannuation Working Group chaired by Don Mercer due to report to Government by the end of March. Special features of superannuation savings such as compulsion and preservation rules oblige us to establish a robust regulatory framework.
Obviously there will be a need to consult in respect of the recommendations, and I will be giving close consideration to changes that are practical and workable, so that the community can continue to have confidence in the security of superannuation savings.
The importance of superannuation to every Australian cannot be overstated. Stepping into the breach to grapple with tax policy for superannuation and administration presents particular challenges.
A feature of any conversation about superannuation usually starts with "don't make any more changes", followed in the next breath with a long list of what should be changed!
Where to start? Well my immediate priorities are to develop the legislation to implement the raft of policies announced during the election to take effect from 1 July 2002. The exception is for splitting of superannuation which is due to be implemented by July 2003.
The measures are designed to significantly enhance the overall attractiveness, accessibility and security of super.
Allowing couples to split future super contributions will be a major incentive to boost their retirement savings. Contributions will be able to be made by one spouse into a separate account in the other spouse's name. This commitment has the benefit of giving financial security in retirement to both parties to a marriage. It will allow a partner who might have taken time out of the workforce to raise children or fulfil career duties to continue to maintain financial planning for retirement.
Reducing the superannuation surcharge from 15% to 10.5% over the next three years, increasing the tax deductible threshold for super contributions by the self employed and introducing a Government co-contributions of up to $1,000 per annum for personal contributions made by low income earners are designed to encourage greater saving for retirement.
Super will be made more accessible by increasing the age up to which members can make personal contributions and by allowing the first child tax refund (the so-called baby bonus) to be contributed to super.
One of the most imaginative policies in the package is the proposal to allow annual superannuation contributions on behalf of a child.
Apart from encouraging superannuation for life, this represents a very major decoupling of the link between superannuation and paid employment. Superannuation for life creates a culture that gives priority to planning ahead and achieving financial self-reliance.
A society educated from a young age about the value of savings can only improve our superannuation system.
Although blocked by Labor and the Democrats in the Senate, the Government remains committed to choice of funds and portability.
More immediate competition between funds through choice and portability is the most effective way for consumers to make judgements about fees and charges and the performance of their super fund and where they want to place their savings.
There are great challenges to be faced over the next few years about how best to target super to meet the needs of future generations.
The main impetus is to be found in the rapidly changing nature of the Australian workforce and our aging population, and also I think, of people's increasing expectations about their lifestyle upon retirement - in other words the adequacy of their super.
The Government is acutely aware of these issues, and the recent announcement of super measures will go a long way to providing further incentives to save for retirement through super.
In recognition of recent developments in retirement income products, the Government will examine the tax and social security treatment of certain market linked income streams including growth pensions.
Not surprisingly I have for many years been interested in the relationship women have with superannuation and their ability to save for their retirement. Women's increased workforce participation over the past decade means that many women will have better retirement incomes in the future. However, interrupted careers and fragmented work patterns inhibit women's capacity to save for retirement.
I am proud to say that this Government has a long history of policy and legislative reforms that have improved the opportunities that women have in our society. Time does not permit a long recitation. However, I am committed to the implementation of a significant initiative that recognise the changing needs of women.
One of the hardest times financially for families comes with the birth of their first child. In recognition of the contribution made by women leaving the workforce to have and raise children, we will be introducing the First Child Tax Refund, or "baby bonus" as it is colloquially known, up to a maximum of $2,500 per year over five years. Low income earners will not miss out with a minimum $500 rebate for a parent earning less than $25,000 in the assessment year. This proposal will repay a parent who acts as the primary carer after the birth of their first baby born after July 2001. Recipients of the bonus will be able to put the amount in a superannuation account.
We also want to use the `baby bonus' to promote a wider national savings culture, that allows the recipient of the bonus to make that contribution to her superannuation.
I have already this evening touched briefly on the HIH Royal Commission and the Safety of Superannuation inquiry. The reports when available will require careful consideration and I will consult widely before implementing any recommendations.
While the Government is in the process of continuing to build and improve on the existing superannuation framework, the general insurance framework has also been updated by the General Insurance Reform Act 2001.
The new framework will ensure the prudential regulation of general insurers is efficient and flexible while remaining safe and stable.
Additionally the issue of the rising cost of premiums for public liability insurance is a matter of concern.
The Australian lifestyle is in such a large way defined by our community spirit. It is important that Saturday mornings spent watching your kids at little athletics, the local community dance and sausage sizzle, school fates and sporting days are not driven out of existence by the cost of insurance cover.
I think it is important that we have an open discussion about the drivers of public liability premiums and what can be done to ensure they remain accessible and affordable to the community and to small businesses.
But let there be no doubt. The State Governments have a clear and unambiguous responsibility in this area.
The forthcoming Ministerial Meeting between the Commonwealth, States and Territories which I will chair will examine ways to address the affordability and accessibility of public liability insurance, and will examine the scope for a nationally consistent approach across jurisdictions.
As someone who has through most of my professional life been closely involved with and interested in social policy, I want to say a few words about caring for people. I know it is not something automatically associated with the political class but I think it is crucial.
I am concerned that there are those who for various reasons feel that they have not been able to participate in Australia's prosperity, who do not feel confident about their future who worry about their security in old age or who worry about their children's education and their future employment.
It is often claimed that the programme of economic and tax reform, this country had to have, is merely founded in the bedrock of economic rationalism - that the modern era of global integration is a threat rather than an opportunity and that faith in markets is misplaced.
I want to challenge these assumptions but in doing so challenge business, industry leaders, community bodies and the Government to do more to make the case for further reform. The great debate over reform is often conducted in the dry language of economics. But it is the job of leaders to place those arguments in a framework that the community understands and accepts.
The reforms we have undertaken have provided the foundation for us to pursue free but well regulated markets, to respect individual freedoms, to provide free but fair trade and give Australians greater economic certainty about how they invest for their retirement and about the choices they make for their children.
As a new Minister in a proven team, I have to say that the central notion that will guide and inform what I will do is concern for the welfare of Australians.
This awareness does not diminish or detract but rather reinforces my commitment to ongoing reforms that will see the tax system working better and provide greater security for Australians.
Despite Australia's standout economic performance we cannot afford to be complacent.
There is always a tension between fiscal responsibility and the demand for greater spending.
To borrow from US economist Arthur Okun, the challenge is how to put some "rationality into equality and some humanity into efficiency".
I think it aptly sums up my challenge, especially as the Treasurer will no doubt remind me that I am the Minister for getting money in rather than the Minister for dishing it out!
I am looking forward to the challenges in the expanded portfolio of Revenue and Assistant Treasurer, and I thank each of you for sharing my vision for a vigorous and creative new Ministry.