In May 2008 the Rudd Government started a comprehensive review of Australia’s tax system, aiming to create a tax structure to deal with the changing demographic, social, economic and environmental challenges facing Australia in the 21st century.
The Australia’s Future Tax System Review (Henry Tax Review), released on the 2nd of May, provides the foundations for a long-term plan for reform; to make Australia’s tax and transfer systems fairer, simpler and more competitive.
Key points
The Review identified a wide range of reform opportunities that could deliver this vision, some of the key points include:
- Rationalisation of the tax and transfer system by concentrating revenue raising on four tax bases:
- personal income
- business income
- private consumption
- economic rents from natural resources and land
The Review also recommends that a number of taxes, including insurance, payroll and luxury car taxes, be abolished over the coming years. With other taxes to be maintained only if they efficiently address social or economic costs, such as taxes on tobacco, alcohol, gambling and environmental costs.
- Configuring taxes and transfers to support productivity, participation and growth, with recommendations including:
- increasing the level of business investment in Australia by keeping the company income tax rate towards the lower end of the small to medium OECD economy average
- promoting higher workforce participation through initiatives such as improved quality child care, building work incentives into the levels of income support payments and steeper means test withdrawal rates
- A simplified personal income tax, based on a two-step tax scale, with other recommendations including:
- The personal tax-free threshold to start at $25,000, replacing the current thresholds and offsets
- All pensions, allowances and transfer payments to be tax-free
- Integrating consumption tax compliance with business systems by:
- Replacing some State taxes (such as payroll tax) with a low-rate destination cash flow tax, with revenues allocated to fund State services
- Replacing input taxation of financial services under the GST with a financial services tax, to be developed with the industry
- Efficient land and resource taxation, recommendations include
- Replacing resource royalties with a project-based uniform resource rent tax, set at 40 per cent
- Replacing existing land tax arrangements with a land tax applying to all land regardless of use
The Government’s response
The Rudd Government’s response to the review, Stronger, Fairer, Simpler: A Tax Plan for Our Future has implemented three of the recommendations:
- a long term plan to apply a Resource Super Profits tax to the profits earned from resources that are owned by all Australians
- A phased cut in the company tax rate to 28 per cent; applying to small business from 2012-13
- The superannuation guarantee to be gradually increased to 12 per cent
For further information:
The final report of the Australia’s Future Tax System Review can be found here:http://taxreview.treasury
Minister’s media release: here
The Government’s initial response to the report can be found at:www.futuretax.gov.au