Introduction
Good morning. It’s a great pleasure to be in Hobart this morning on the final day of your 29th national convention.
I trust you’ve had an engaging and fruitful couple of days already, hearing from a wide range of distinguished speakers.
What I want to talk about this morning is the Government’s agenda for tax policy in the context of where our economy is now and where we want it to be in the years ahead.
I also want to give you an update on what we’re doing on some specific tax measures, and how the Treasury and the ATO are working together.
Firstly, though, to our current economic context and how tax policy fits in to a landscape of change, and a time of engendering economic growth.
Tax policy and economic growth
There’s no question Australia faces some significant policy challenges over the coming years. Falling terms of trade and the ageing of our population will both put pressure on national income growth and on government budget balances.
In response to these challenges, the Government has committed to a new era of reform in Australia; a new era aimed at lifting living standards and making the most of the underlying potential of our economy.
The Coalition’s priority was clearly laid out before the election – we want to build a stronger economy through lower taxes.
We know that lower taxes and more efficient government will lead to more productive businesses and therefore more jobs and higher wages for all Australians.
Labor has never understood how higher taxes can put a real handbrake on our economy. For the Labor Government we have replaced, it seemed the answer to every problem was more spending, more debt and higher taxes.
Our approach is different – we will lower taxes to stimulate stronger economic growth and unleash our economic potential.
Our reform agenda is wide-ranging, and one particularly important element is the operation of Australia’s tax system.
Productivity growth, international competitiveness, economic growth, and improved living standards will all be supported by a more
efficient and simpler tax system.
A tax system that provides incentives for workforce participation, and helps Australian businesses participate in the global marketplace.
Treasury and the business world
Given this goal of a simpler and more efficient tax system that doesn’t create unnecessary barriers for business, it’s essential that Treasury ministers like me bring the Treasury department and the Tax Office
on a journey towards a better understanding the business world.
These agencies need to better understand how business actually works, what drives decisions to start up, invest and generate jobs in the economy, and what government can do to support those decisions and reduce the burden of regulation.
This is why we took to the last election a comprehensive plan to get Australia back on track, particularly in small businesses, family enterprises and start-ups across the country.
One of the most significant commitments was to bring small business policy into the Treasury portfolio and for my colleague, Bruce Billson, to be a member of Cabinet as Minister for Small Business.
This change ensures consideration of impacts on small business is at the heart of all government decisions, and the gamut of Treasury capability is available to look at policy changes that can support business-led growth in the economy.
Reducing the tax compliance burden
A central plank of our reform agenda is reducing the regulatory burden on business, including the tax burden.
And the burden of the tax system is more than just the revenue raised.
It’s also the time it takes to comply, the uncertainty and also the complexity inherent in the system.
The Government recognises that complexity imposes a significant compliance burden for individuals and businesses.
As an indicator of the expanding complexity of the tax system, the income tax law has grown to around 6000 pages today.
Australia’s first public servant, Robert Garran, said of the very first income tax assessment act that “it was a thing of beauty and simplicity with words that T.S. Eliot might have envied.”
How things have changed!
It can be difficult and costly to comply with the requirements of the tax system, especially for small businesses who don’t always have the extra resources to devote to tax compliance that a larger business would have.
The choices in the tax system of how to structure and operate a business or transaction also add to compliance costs, even if they potentially lower the tax take.
Simplifying the tax system and reducing the compliance burden on taxpayers will help relieve the burden felt by businesses, community organisations and individuals.
Unenacted measures
Any simplification of the tax system should start with a spring clean. The Coalition has already taken decisive action to resolve the backlog of 92 announced but unlegislated tax and superannuation measures.
Of the total 92 measures, 34 will proceed, 3 will be amended and 55 will not proceed.
And because of the uncertainty this backlog generated, the Coalition will also legislate protection for any taxpayer who has self-assessed under announced changes that won’t proceed.
Not proceeding with 55 of these measures removes some compliance impact, including the cost of becoming familiar with and complying with the amended law or seeking professional advice to meet the new obligations.
As the Treasurer announced soon after being sworn in, we have a tax reform program that involves short, medium and long-term actions.
First on the to-do list is scrapping the Carbon Tax, and the poorly designed and badly implemented mining tax, both of which have added to the regulatory burden on enterprise.
Next is dealing with the backlog I mentioned, and legislating the changes we are proceeding with.
Beyond these immediate changes, we will work to deliver a taxation reform program that keeps to our core principle – keeping taxes as low as possible and as simple as possible.
To work on this program, Treasury and the ATO have established a new joint committee with the private sector, the Tax System Committee (TSC), to refocus discussions at a higher, more strategic level to address new and emerging challenges in tax policy and law design.
Commissioner’s remedial power
Treasury and the ATO have also established a working group with representatives of the private sector to look at creating a power for the Tax Commissioner to resolve unintended and anomalous outcomes, known as a statutory remedial power.
This remedial power would provide a mechanism for resolving unintended and anomalous outcomes in the tax law more quickly than is possible through legislative amendment. The power may also have
a broader benefit for the tax system by allowing minor technical corrections that wouldn’t otherwise happen.
The outcomes of the Working Group’s consideration will inform Treasury’s advice to the Government on whether such a power is appropriate, and if so what form it could take.
We are certainly interested in hearing from you what your thoughts are on introducing a remedial power.
Trusts reform
The Government is committed to having a strong and vibrant small business sector.
I am announcing today that the Abbott Government has asked the Board of Taxation to conduct a fast-track review of impediments in the tax system that unreasonably affect small business.
Of course, a number of organisations have produced good work in recent years regarding the regulatory burden on small business. That includes the Board itself in its 2007 scoping study of small business tax compliance costs.
This new review, focused on impediments in the tax system, will be an opportunity to compile and, importantly, to prioritise areas for possible future reform.
The Board will undertake the review on a “fast-track” basis, by using its extensive links with tax professionals, consulting with key business groups and drawing on existing work. It will report back to Government by 31 August this year.
In the interim, we are already taking action to support small businesses.
We understand that small businesses have a number of legitimate ways to structure their businesses: as companies, sole traders, partnerships or as trusts. The Government views trusts as legitimate arrangements taxpayers can use for a variety of purposes, including the conduct of small businesses, investment and succession planning. After all, more than 300,000 trusts produce income from business activities.
We will examine further how we can support small businesses to grow, as well as the appropriate taxation of trusts, by considering these issues in the context of the tax White Paper, which I’ll talk more about in a moment.
On a related matter, in November, the Government announced the Board of Taxation would extend its review of Division 7A of Part III of the Income Tax Assessment Act 1936.
Division 7A is an integrity provision designed to prevent inappropriate access to company profits through payments, loans or debt forgiveness, for example access by shareholders or their associates, without incurring tax at the personal level.
The extension allowed the Board extra time to consider not only how Division 7A operates, but also its interaction with other areas of the tax law, and whether there are problems with its operation that are producing unintended outcomes or disproportionate compliance costs.
This is just one example of the way our Government is looking to simplify the system for small businesses.
White Paper
As I mentioned, the Government will produce a comprehensive Tax White Paper as part of our broader reform agenda.
The White Paper will provide an important opportunity to take a longer-term considered approach to tax reform and help deliver predictability and stability in tax policy-making.
We will consult and engage extensively with the community during the development of the White Paper. As part of this process, we intend to release an initial discussion paper inviting comments from the public.
I encourage you all to contribute to the consultation around the discussion paper and other opportunities in the White Paper process.
We will then take any proposed tax changes flowing from the Tax White Paper to the Australian people at the next election.
The G20’s tax action plan
Finally this morning I’d like to move from our domestic tax reform agenda to the international one.
As you know, Australia is chairing the G20 this year, and we are leading with a clear and bold agenda for growth and reform.
Base erosion and profit shifting
One of the key issues the Treasurer has identified for G20 Finance Ministers to focus on is tax base erosion and profit shifting (or ‘BEPS’).
The digital age has provided multinational enterprises with greater flexibility to separate their taxable profits from the jurisdictions in which these profits arise — resulting in low or no taxation.
BEPS is a concern for all G20 countries because it undermines the ability of governments to provide services to their communities while maintaining tax systems that support investment and economic growth.
BEPS also raises concerns that tax burdens are not being evenly distributed, allowing some companies to gain a competitive advantage over others.
The most effective way to tackle this global challenge is through a coordinated and multilateral response – and one that, I stress, doesn’t impose undue compliance burdens on business.
As G20 President, Australia is fully supportive of the G20’s commitment to a global response to BEPS based on sound tax policy principles.
There is broad support among G20 countries for the work that the OECD is progressing in this area.
I am confident that, based on the agreement and cooperative spirit we saw at the G20 Finance Ministers’ Meeting in Sydney last month, we will begin to see agreed approaches that address our priorities in this area later this year.
Common Reporting Standard
Another key part of the G20’s tax agenda is the Common Reporting Standard.
This is an international reporting standard for automatically collecting financial account information on non-residents by financial institutions, reporting that information to the jurisdiction’s revenue authority, and exchanging that information with the respective revenue authority of the non-resident.
The Government will soon release a discussion paper to consult with business on the timing for implementation, and how compliance costs can be minimised.
Conclusion
As you’ve heard, the Government has a broad and busy agenda for tax reform.
There are some goals we can kick in our first term, and beyond that we will take our plan for far-reaching reform to the next election.
Tax reform is a vital part of how we set our economy up for a strong and sustainable future.
Thank you.