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Abbott Government releases tax reform discussion paper

Treasurer Joe Hockey has released the Abbott Government’s tax discussion paper, ‘Re:Think’, as part of what will become an ongoing process designed to produce a comprehensive plan on how to improve the tax system before the next election.

The paper is designed to stimulate debate to inform a tax reform Green Paper later this year and a White Paper next year.

One of the headline reform areas for discussion is a broadening of the tax base, which includes consumption and indirect  taxes such as the GST in order to decrease government’s dependence on the income tax system. Other areas addressed in the discussion paper include:

  • Current challenges for Australia’s tax system;
  • Australia’s current tax framework;
  • The taxation of individuals;
  • The taxation of savings;
  • General business tax issues,
  • The taxation of small businesses;
  • Taxing the not-for-profit sector,
  • The administration of Australia’s tax system; and
  • Governance of the tax system.

The paper notes that, at 10 per cent, Australia’s GST is one of the lowest in the developed world, and raising it to at least 15 per cent would raise approximately $80 billion additional revenue each year.

It also starts a discussion as to whether the number of areas the GST applies to should be expanded. In particular, taxation of the digital economy is one area to be explored. Currently, online purchases worth less than $1,000 are exempt from GST, while the proportion of non-digital sales to which the GST applies has slipped from 56 to 47 per cent in the past decade. The paper argues the online purchase threshold should be removed and efforts made to apply the GST to a broader spectrum of sales.

The rationale for the paper’s focus on the GST is the viability of relying on income taxes – which 70 per cent of Commonwealth tax revenue is collected from – in the future. The paper highlights concerns bracket creep will result in disincentives for Australians to increase productivity and investment, with the number of workers in the top two tax brackets projected to increase by 16 per cent in the next decade, to 43 per cent. The stability of this revenue stream has been drawn into question, and the suggestion made the Government should consider indexing income tax thresholds.

The paper also argues the globalisation of business is another challenge for Australia’s tax system, and that there is a pressing need for a competitive corporate tax regime that balances the need to encourage investment with capturing tax from multinational corporations. It does, however, suggest Australia’s company tax rate should be lowered, and for the GST to step in as the predominant source of tax revenue.

The Government has committed to not changing superannuation arrangements in this term. However, the paper argues there are inequities in the way super concessions are currently distributed. It raises the possibility of changing how capital gains tax is applied to superannuation, and criticises the measure taken in 2007 that saw superannuants removed from the tax system.

The Treasurer says “tax reform is a critical part of the Government’s policy to create jobs, growth and opportunity,” and that today’s regime is ineffective because it was designed in the 1950s. He stated the Government is committed to developing a tax policy for discussion with the public in 2016.

Further information

Submissions related to the discussion paper can be made until 1 June 2015. A copy of the discussion paper can be downloaded here.

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