15 March 2019

Address to the Tax Institute’s 34th National Convention, Hobart, Tasmania

Thank you for that introduction and warm welcome. I'd like to thank The Tax Institute for the opportunity to speak to the Convention.

The Convention is a great way to hear from presenters across the profession. I'm impressed by your commitment to educating tax professionals. But, most of all, I'm impressed - and continue to be impressed - with the Tax Institute's willingness to engage with the Treasury and the Australian Taxation Office.

Today I'm going to speak about the Morrison Government's plan for a stronger economy which includes tax relief for both Australians and businesses.

Like you, we want more Australians to have confidence in the taxation system and I'm pleased to outline some of our priorities for tax reform today.

As part of our plan for a stronger economy, we are delivering lower, fairer and simpler taxes to encourage and reward working Australians. We are also fast‑tracking tax relief for small and medium-sized businesses.

Lower taxes

The Morrison Government's plan for a stronger economy is working.

In 2013 the Coalition said it had an economic plan that would deliver 1 million jobs over five years.

I'm pleased to tell you that over 1.2 million new jobs have been created since we came to office. That's around 240,000 on average per year, well above the previous Labor Government whose job growth was around 155,000 on average per year.

The Mid-Year Economic and Fiscal Outlook in December shows Australia is on track to return surplus in 2019-20 - the first time since 2007-08, which was the last Howard Government budget. Reducing the rate of increase in government spending to 1.9 per cent on average, half what it was under the recent Labor Government, and sensible economic management has set us up for a surplus.

The economy should record its 28th consecutive year of annual growth and in 2018 it grew faster than all G7 countries bar the United States.

I want to make a couple of points about inequality in Australia.

Contrary to what some commentators claim, our sustained economic growth has delivered improved living standards for the average Australian in every income decile. 

The Survey of Income and Housing from the Australian Bureau of Statistics shows substantial growth in real incomes for the entire distribution since the early 1990s, as well as growth in real net wealth for all quintiles since 2003-04.

This finding was backed up by a Productivity Commission research in 2018.

The Productivity Commission found that Australia's progressive tax system and highly targeted transfer system have a powerful equalising effect on household incomes, and have generally lowered the measure of overall income inequality by 30 per cent.

In addition to the Government's strong and prudent financial management, we continue to guarantee the essential services Australians rely on without resorting to growth-inhibiting higher taxes. Access to health services is important to Australians – an essential.

Since 2013-14, the Coalition's economic management has allowed us, for example, to provide $7.7 billion to subsidise medicine to treat one of the biggest killers, cardiovascular disease, on the Pharmaceutical Benefits Scheme and over $660 million for research into cardiovascular disease.

The Morrison Government is also helping to improve the daily lives of Australians suffering from cancer. The Government is investing more than $200 million to list four new breakthrough cancer treatments on the PBS, saving patients with leukaemia, advanced kidney cancer, bladder cancer and liver cancer tens of thousands of dollars a year.

We believe Australians should pay less tax, not more where possible, consistent with the need to provide access to health services, high quality education, reliable and affordable power and effective defence.

The Morrison Government believes in supporting enterprise - backing those who take a calculated risk and have a go.

Increasing the capital gains tax is not going to help Australians who want to get ahead, or just want a secure future without relying on the state.  And then there is Labor's change to negative gearing that will increase tax on the 1.3 million Australian investors who negatively gear.

The Coalition believes in reward for effort, not in bigger taxes like the $200 billion of new taxes that Labor promises to introduce.

In addition to those I have mentioned, the Opposition's tax policy includes:

  • a top rate of tax of 49 per cent on individuals – this group of around 415,000 people that contributes over 30 per cent of personal income tax;
  • increased taxation on superannuation;  
  • a minimum 30 per cent rate of tax on income from discretionary trusts received by individuals over 18 years of age;
  • capping the deduction for managing tax affairs allowed for individuals, self-managed superannuation funds at $3,000 a year. The cap has been reduced once already from $5,000 before the 2016 election now to $3,000. Their policy is based on a very narrow foundation: that a number of Australians, 48 to be exact, earnt more than $1 million in 2014-15 but paid no tax because they used lawyers and accountants, paying them more than $1 million in fees.

Personal tax cuts

To encourage aspirational Australians to get ahead, we are removing an entire tax bracket to ensure Australians pay less tax. As a result more than 90 per cent of people will be paying tax of no more than 32.5 cents in the dollar.

Under the Government's plan, which has been legislated, Australian taxpayers will be paying less tax both now and into the future.

Lower taxes reward taxpayers for their hard work.

Business tax cuts

We understand that Government's don't create jobs – businesses do. However it's the role of Government to ensure the right settings for business to grow and prosper.

We have fast-tracked tax relief for around 3.3 million small and medium-sized businesses.

If you run an active company with a turnover below $50 million, it means you will have a tax rate of 25 per cent in 2021-22 - five years earlier than originally planned.

Similar timing applies to the rollout of the 16 per cent tax discount for unincorporated businesses.

Our reforms mean businesses are able to keep more of their money and are able to invest back into their business and create local jobs.

The successful $20,000 instant asset write-off, first introduced in the 2015-16 Budget, is being increased to $25,000 and extended until 30 June 2020.

The increased threshold will apply from 29 January 2019, subject to the passage of legislation.

Investment in new equipment can be a powerful boost to productivity and efficiency.

Tax clinics

The Government recognises that compliance with tax laws can get   complicated and costly, whether for those who are new to the system, like the entrepreneur starting out, those new to the country getting acquainted with their taxation responsibilities, and others who find it just overwhelming.

The services of a university operated tax clinic is a new way of filling a gap in existing services for those individuals and small businesses who feel they cannot afford professional support.

The Government has allocated one million dollars to set up 10 tax clinics in a 12 month pilot program.

In conjunction with major and regional universities, that already have complementary courses and faculties, clinics will provide free assistance to small businesses and individuals that have tax problems, whether in relation to compilation and lodgment of tax returns or activity statements, or disputes with the ATO.

The clinics will also educate these groups about their rights and responsibilities as taxpayers.

The ATO has been involved with the tax clinic set up in Perth's Curtin University prior to the trial, and will be administering the grants process and provide ongoing support to the clinics during the pilot.

University students in the tax clinics, under the supervision of their lecturers as well as tax and accounting professionals, will be there to help individuals, and small businesses navigate the system. And where needed, to assist them resolve tax disputes simply and quickly.

There is an opportunity for you as tax professionals to be engaged with tax clinics by providing assistance on a pro bono basis.

The shortlisted universities cover all states and territories of Australia including the great State of Tasmania. In fact later today, I'll be visiting the Newnham Launceston campus of the University of Tasmania's tax clinic.

Fairer tax

Now at the other end of the spectrum, the Government is also taking action to make sure everyone pays their fair share of tax in Australia.

Changes in the multinational tax landscape and the constantly evolving black economy are factors shaping our approach.

Multinational tax

Over the past few years, the Government has put in place more than a dozen measures to address corporate and multinational tax avoidance1.

We have been actively participating in the OECD's Base Erosion and Profit Shifting (BEPS) project, implementing numerous BEPS recommendations including country by country reporting - "a transformational change" in the words of Commissioner Jordan – as well as the hybrid mismatch rules and the multilateral instrument.

The global nature of tax-avoidance means Australia cannot go it alone; it requires coordination and a forward-leaning approach to international forums.

We've been working through the OECD and the G20 to make sure multinationals pay the right amount of tax in the countries where they operate.

The Government has not shied away from taking action on big multinational businesses and vested interests.

We introduced the Diverted Profits Tax to prevent multinationals shifting profits made in Australia offshore, which is expected to raise $100 million a year.

Over Labor's opposition, the Government legislated the Multinational Anti-Avoidance Law (the MAAL). In the words of ATO Deputy Commissioner Jeremy Hirschhorn these are "world leading legislated tools".

In the Deputy Commissioner's assessment the MAAL has been "highly effective in bringing the big inbound e-commerce companies to the table and resolving their legacy issues".

These companies have fundamentally changed their business model, now acknowledging a taxable presence here, and will return $7 billion in sales revenue to Australia each year as a result of the MAAL.

Recently, we introduced a Bill that will broaden the scope of multinationals and other large corporates that are subject to the Diverted Profits Tax and the MAAL. The Bill also will prevent manipulation of asset values as a way of exploiting thin capitalisation rules to increase their debt deductions.     

We're making sure our laws are not only strong but also hit the mark.

Separately, we've established a Tax Avoidance Taskforce within the Australian Taxation Office.

The ATO has raised more than $12 billion in liabilities since inception of the Taskforce on 1 July 2016, netting almost $7 billion in cash. Evidence in the field  is that the Tax Avoidance Taskforce has been a success in terms of liabilities raised and the cash collected, but importantly also the Tax Office has found it is improving the compliance behaviour of large corporates.

There's more to be done, and the Government is onto it.

On the international enforcement front, Australia has joined the J5 - a new international tax enforcement alliance including Canada, the US, UK and the Netherlands.

The J5 will increase collaboration in the fight against international and transnational tax crime and money laundering.

Under the Coalition, Australia has become a leader in the automatic exchange of financial information based on the OECD's Common Reporting Standard.

We have over 100 treaties and exchange arrangements in place, including with countries such as Switzerland. The days of hiding income and assets overseas are over.

Black economy

The black economy - estimated by the Black Economy Taskforce to be worth about $50 billion - is another area where reforms continue to take place to level the playing field for businesses and consumers.

The catalyst for change stems from the Black Economy Taskforce, set-up by the Government in 2016, to develop a whole-of-government strategy to combat the black economy.

The taskforce found: The black economy is manifestly unfair, allowing some to play by their own rules and penalising businesses, employees and consumers who do the right thing.2

In response to the recommendations of the Black Economy Taskforce, the Government is taking immediate action on several fronts.

Procurement and supply chain integrity

The Black Economy Taskforce reported that total Australian Government procurement was $57 billion in 2015-16.

As one of the largest procurers of goods and services in Australia, the Government can send a strong message that poor tax practices are unacceptable n the supply chain. 

In agreeing to a recommendation of the Taskforce, the Government is leading by example by increasing the integrity of government procurement practice. We are demonstrating that we support firms that are doing the right thing.

From 1 July 2019, businesses wishing to tender for Commonwealth government procurements over $4 million will need to have a satisfactory tax record.

Those who in the past have been undercutting prices by not complying with their key tax obligations will be locked out.

Our policy will help put all tenderers on an equal footing. This action will increase public confidence that businesses winning Government contracts are also meeting their key tax compliance obligations.

Standards Australia has also been engaged to consult with industry on the development of a national framework for possible standards to ensure the integrity of private supply chains.

Contractor reporting

From 1 July 2018, the Government extended the Taxable payments reporting system to the courier and cleaning industries which the Black Economy Taskforce considered to be at a high risk of contractors not disclosing their income.

The Government is taking further steps by extending the reporting system to the road freight, security and information technology industries from 1 July 2019.  This gives the ATO greater transparency of payments to contractors.

Analysis showed that these industries were at higher risk of not complying with their tax obligations by not reporting their income or under-reporting income.

The Government's action will increase transparency in these higher risk industries providing these contractors with motivation to report and pay their fair share of tax. 

Illegal tobacco

The Government is continuing its commitment to combatting illicit tobacco through the Illicit Tobacco Taskforce and new tobacco import arrangements as part of a package that will result in a net gain to the Budget of $3.6 billion by 2021-22.

The Illicit Tobacco Taskforce has made a number of seizures and arrests relating to the importation or domestic cultivation of tobacco and tobacco products.

For example, in February this year, the taskforce exposed a criminal syndicate involved in importation of 1.87 million cigarettes and 12 tonnes of loose leaf tobacco, which represents $15.9 million in evaded duty. In January, the taskforce seized and destroyed an illegal tobacco plantation worth more than $9 million in potential excise. 

In October 2018, the Government passed legislation that from 1 July 2019 all duty on tobacco will be collected when it enters the country, rather than when it enters the domestic market, eliminating leakage of tobacco from warehouses to the black market.

From 1 July 2019, permits will also be required for all tobacco importations, assisting border officers to quickly and efficiently determine when an offence has been committed.

Cash payment limit

From 1 January 2020, an economy wide cash payment limit will apply to all cash transactions for goods and services over $10,000. 

The Taskforce noted that as cash is untraceable it is easily used to facilitate criminal activity.  This measure will limit opportunities for those doing the wrong thing to hide their income and provide businesses with a level playing field against those operating on a cash basis and avoiding their obligations. 

Australian Business Number (ABN) reforms

The Government has consulted on a new regulatory framework to improve the integrity of ABNs as a business identifier and to minimise the abuse of ABNs.  The Government will continue to work with stakeholders to provide confidence in the identity and legitimacy of Australian businesses. 

Enforcement and compliance

The Government has established a multi‑agency Black Economy Standing Taskforce, comprising key enforcement agencies to better coordinate efforts against black economy activity. 

The ATO is implementing a new and enhanced enforcement strategy that brings together mobile strike teams and an increased audit presence; a Black Economy Hotline that will allow for the community to report black economy and illegal phoenix activities; improved government data analytics; and educational activities.

We've also consulted on taking a more targeted, stronger and visible approach to enforcement when it comes to the black economy.

We've sought views on what non-financial penalties could enhance compliance with tax law.

For example, in what circumstances could a travel ban apply to Australian taxpayers?

And what level of increase to the civil penalties would serve as an appropriate deterrent to stop employers from engaging in sham contracting?

Sharing economy

The Government is also consulting on the sharing economy.

We want to know how we can make a more robust reporting regime for the sharing economy that better captures information on income from users who sell goods and or services on sharing economy websites.

There should be more transparency in the sharing economy right now, making it easier for the people earning income from the sharing economy to comply with their tax obligations and also for ATO data matching to ensure a more level playing field.

We want to understand what needs to be captured and how, and will work with sharing economy platforms to make the sharing economy system fair.

Financial services

Before I close, let me finish with a few remarks about Australia's financial system. As you know, Commissioner Hayne provided the final report to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on 1 February – it, and the Government response, were released publically on 4 February.

The Government is taking action on all 76 recommendations contained in the Royal Commission's Final Report and, in a number of important areas, is going further.

In outlining its response to the Royal Commission, the Treasurer announced that the Government's principal focus is on restoring trust in our financial system and delivering better consumer outcomes, while maintaining the flow of credit and continuing to promote competition.

Closing remarks

So let me thank the Institute, once again for inviting me here today.

I welcome the opportunity to talk about the Morrison Government's approach to lower, simpler and fairer taxes.

The measures I've outlined today form a fundamental part of our plan in building a stronger economy.

At the same time, our reforms provide Australians with a tax system they can have confidence in - one that has integrity, sustainability, and equity.

Thank you, I look forward to catching up with you all.

1 - /ministers/josh-frydenberg-2018/media-releases/labor-cant-walk-talk-multinational-tax

2 - /sites/ministers.treasury.gov.au/files/2019-05/Black-Economy-Taskforce_Final-Report.pdf