With just two days to go until the Federal Government unveils its long-awaited response to the Henry Tax Review, tax and business experts are announcing what they expect to see in the big reveal.
Among the biggest expectations are a recommendation for a drop in the corporate tax rate, the abolition of some state taxes and the introduction of an optional tax return system for the majority of taxpayers.
Prime Minister Kevin Rudd and Treasurer Wayne Swan have been hinting at some inclusions in the report for months, with the most quoted reference being the inclusion of an optional tax return system.
Just yesterday, Rudd told the New South Wales Business Chamber that the response to the Henry Review will aim to lower tax burdens for the majority of Australians.
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“In our response to the Henry Review the Government will make the tax system stronger and fairer,” he said.
“Improving the structure of the tax system by replacing inefficient taxes with more efficient ones and streamlining governments and administrations reduces complexity and makes the Australian economy more productive.”
“Australia needs to respond, to remain an attractive place to invest and to do business. That’s the reason the Government’s aspiration is to reduce the level of tax faced by the vast majority of Australians.”
But while businesses across the country are eagerly waiting for the Government’s response on a number of issues, tax experts have said many of the recommendations could be put on hold for a number of years.
CPA general manager Paul Drum says some of the Government’s recommendations may not be taken up for several years.
“This is a Government that has recently made a series of announcements, but adds a tail on them so that there is a long time before changes are implemented. They have banned certain practices for financial advisors, but they will come in a few years – and so on.”
SmartCompany will have founder Amanda Gome and reporter Patrick Stafford in the special lock-up before the Government makes its announcement, and will send out a special Henry Tax Review edition email on Sunday afternoon.
But here’s a preview of some of the hot topics you should expect to see.
Simplified tax return system
Swan has been using the Henry Review to drop hints on the Government’s tax agenda over the past 18 months, with one of the major introductions to be the commencement of an optional tax return system for individuals and a simplified tax return system for small business.
Swan last year said the fact a majority of taxpayers need an agent to complete their returns is a testament to the complexity of the system.
CPA tax counsel Yasser El-Ansary says the system would see the Australian Taxation Office fill in the majority of a person’s details using data-matching techniques, and then they would be sent a return with no effort at all. Basically, it’s an extension of the already simplified e-tax software.
CPA general manager Paul Drum and Pitcher Partners partner John Ross also expect to see the commencement of an optional tax return system.
Corporate tax rate
With the current company tax rate at 30%, most experts believe the Government will adopt a Henry Review recommendation to drop that rate and simplify a number of other businesses taxes. Drum says this has been on the cards for some time.
“We would like to see a cut in the corporate tax rate, but it mightn’t be the final destination, in that they could set a goal and then make increments towards that. But surely shaving off a couple of percentage points now would be a big bolster to business confidence.”
Judging by the recent Dun & Bradstreet survey which showed a majority of small businesses are urging the Government to simplify taxes, a cut in the corporate tax rate would surely be a confidence booster.
Members of the Reserve Bank of Australia have made comments regarding the high levels of debt being taken on by Australians, and their relatively low amounts of savings. Drum says this will be addressed in the Henry Review, with some recommendations to include relief for interest charged on savings.
“We do have a national savings problem here,” El-Ansary says. “We might see savings totally exempted from an interest tax, or see a more concessional tax rate. Either way, I think we’ll see moves in that area towards that kind of policy.”
With the Government facing criticism from the Opposition regarding the swelling deficit, and the predictions of an extended mining boom over the next 10-20 years, several experts suggest a new tax on resources will be implemented to gain as much revenue as possible.
“Certainly Dr Henry has made the recommendation that the sector should be made subject to more tax, and the community should be seeing a further return or not. Whether or not they adopt that straight away, or put it in for further consideration, remains to be seen.”
“Either way, if we do move in this direction and end up with a new resources tax, the Government must make a commitment that any revenues earned must go to a sovereign wealth fund that will provide a pool of assets for the broader Australian community.”
Dum says the Government is expected to introduce a new resources tax, but what metric this will apply to, whether it be tonnage or profit, remains to be seen.
Comments from both Rudd and Swan indicate the Government is heading towards a more centralised system of tax, with fewer complications between the State and Federal levels. These experts say the Australian Taxation Office may be recommended to take over the distribution and collection of state taxes, with some to be abolished together.
“I think a secondary element when it comes to taxes will be a reform of the way state taxes are levied,” El-Ansary says. “There may be an expansion of some state taxes with the abolition of some inefficient ones. Stamp duty is unlikely to be removed because there is too much at stake there.”
Drum says the ATO could become the collection point for state taxes such as land and payroll duties. However, it should be pointed out that some representatives from the accountancy industry say taking away some state taxes could result in a massive cut of workflow for many small businesses.
One of the more unusual recommendations could be the inclusion of a user-pays model when it comes to roads and rail. Ross says the system could see users charged for every road used but would have other taxes, such as registration and fuel excise, cut as a result.
“The significant change could be in the area of pricing of transport and infrastructure, with the introduction of a user-pays system. There would be a need for spending there, and the way to achieve that system would be through petrol excise taxes. Some of the registration taxes we pay could be reduced to offset that.”
While the Government has already introduced some controversial reforms for extra superannuation contributions, the Henry Review is expected to deliver some more changes when it comes to taxes on super.
“There’s been some indication that the potential here is to increase the contribution charge to 30%,” Ross says. “The financial services associations are struggling to lobby against that. I wouldn’t support such a move… I think there is likely to be a change that would be detrimental to the savings of all Australians.”