TAX NEWS - June 2010

Australia tax reform process

Tax specialists believe the Rudd government will need to demonstrate a much more comprehensive response to the Henry tax review before it bears comparison with the reforms of the Hawke or Howard governments.

The potential gain to the economy of accepting Treasury secretary Ken Henry's reforms in full were put by his panel at between $10 billion and $25bn a year, not far short of the dividend from the economic reforms of the 1980s and 1990s, as estimated by the Productivity Commission.

"If you accept those numbers, there is a big potential payoff from these tax reforms, but the Rudd government has looked at only a fraction of it," Melbourne University's John Freebairn said yesterday.

Kevin Rudd used the example of the tax reforms of Paul Keating as the model for that which his government was trying to achieve with its mining tax, along with the reduction in company tax and increase in superannuation.

However, Professor Freebairn said, the government had not touched the main elements of the Henry report, including broadening the income-tax base, simplifying the personal-tax schedule, replacing conveyancing duties with land tax and taxing roads, alcohol and gambling sensibly.

The government also had failed to tackle state taxation, he said.

"A lot of those are on Rudd's list of things he has said he won't touch, while some he said they might think about. If that is the tax reform process, he has left most of his passengers on the stop."

University of Sydney's Michael Dirkis said the government had rejected 20 per cent of the Henry report's key recommendations.

When former Liberal treasurer Peter Costello received the Ralph report on business taxation in 1999, he accepted most of the recommendations.

The reforms of Mr Keating as treasurer in the mid-1980s were huge, including the introduction of fringe benefits tax, capital gains tax, dividend imputation, and the reform of the taxation of company income earned internationally.

Professor Dirkis said it was most worrying that the Rudd government had established no process for considering further reform.

"A vast number of the proposals are still out there without a formal government response. Having commissioned the thing, you would think they would establish a timetable for review that would tell people when and how they would consider the rest of the recommendations. Instead, all we get is the initial response, followed up by the budget a week later and then a stony silence."