Australian Tax Review Systems - Henry Tax Review - Essay Example

Australian Tax Review Systems Name: Course: Course code: Tutor: Date: Introduction The success of any nation in the world depends on various things- the country’s natural resources, the productivity of its citizen, the system of law governing and the good relationship with its neighbors and the international community. Interwoven with each and every of this is the design of its tax system. If the tax system of a given country is taut and trim, both the private and public institutions will be more effective and vital. If the tax system is sclerotic and ragged, both are trouble For the last three decades, the Australian tax system has undergone a continuous reform process in response to the changing policy context since problems have been identified in the current policy settings. These reforms have supported fiscal position and have made huge contributions to the Australian economy. Particularly, this reform process has remarkably contributed to resilience of the country’s economy since 1997-98 and also during the recession in the developed countries (Chris Aulich, 2010). Aspects of Australian system that require reforms Australia is currently facing various sets of economic/political, social and environmental circumstances that have greatly shaped tax and transfer policy since its inception. Developing demographic, health and other pressures on the budget on various government levels, and anticipated challenges to the country’s economic circumstances, questions the durability of the tax and transfer system. The re-emergence of the Asian bloc as the world’s center of economic activities together with the increasing globalization, that is characterized by capital mobility to labor, has had a significant effect on how investments is taxed and will advance the need for tax reforms that support growth of productivity (Simon James, 2015). Why reform Australian tax system Australia’s tax system has become wanting to as to meet the criteria of a successful tax system. The current system is regarded as a “burning platform” which though it supports the country now, it may fail soon if proper action is not take. There are four compelling truths demanding as to why the current system requires immediate attention. Forecast long-term budget deficit, reducing international competitiveness, increasing systematic impracticalities and decrease in its ability to respond effectively to change implementation First of all, without reforming its tax system, the Australian government faces tenacious and unsustainable budget deficits. The major contributing factor towards the budget deficit is the country’s aging population. As the entire population is getting old, the bigger part of it will be out of job. In return, they will be claiming their retirement and healthcare benefits and make less contributions to the government revenue. Although the government announced some measures on how to rein on the deficits, it is not clear whether it will be successfully implemented. In addition, the country’s tax system leans greatly towards personal income tax, company tax and goods and services tax and exclude other fast-growing categories of expenditure. As a result of this, narrow tax base, the tax burden is born heavily by some sectors than others. It also results to volatile revenue Second, with the increase in globalization in of the world economy, Australia’s tax system is unable to support the global competitiveness of the Australian business. Tax forms a vital part of the cost structure and also business competitiveness. Tax also is a major factor to be considered when choosing where to invest and operate (whether Australian based or foreign). The Australian income tax rates are becoming uncompetitive. Personal income tax rates are becoming higher than various countries where global personnel can live. In 2010, the Australia’s company tax rate was well below the OECD average but it has currently risen above it. If Australian businesses environment has to be competitive enough to attract foreign business, the country’s tax system has to be reviewed. Improved tax policy setting enhances the productive efficiency of the Australian economy. In the long-run, productivity performance will determine the economic growth of the Australians (OECD, 2012). Third, the country has one major impracticality where there is a vertical fiscal imbalance existing between the State and Federal Governments. States have substantial spending but have scarce sources of revenue. The introduction of the GST was a milestone towards solving the issue. Nonetheless, not all the anticipated reforms of ineffective State taxes that were intended to happen with the introduction of GST have occurred. Fourth, the current Australian tax system is ineffective. It offers a crumbing foundation which sources the necessary amount of revenue to fund key major government services, comprising of those offered in both rural and regional areas and also those offered through social security systems. The current system is not consistent to the commitment of increasing or maintaining the current levels if expenditure on social security but to be opposed to systematic and fair reform of a falling tax base. Without the presence of a comprehensive reform, the current system will only become more inefficient. The Commonwealth will largely become reliant on income taxation levied on individuals and companies so as to fund major government services. Tax rates could rise and the system could become unfair to individuals and corporations who had the chance to minimize or avoid their tax gradually did so. Last but not least, the current system is very complicated. Legislations of income tax have risen from about 120 pages to over 700 due to 60 years of filling and patching. For the last fifteen years there has been over 600 different tax policy changes proclaimed. On the other hand, the income support system has also become very complex. Currently there are over 30 different types of income supplements and support under social security and tax regimes, with variable thresholds, tax requirements and delivery mechanism. The complexity of the current system has led to over 70 percent of the tax being done by agents. This levies high compliance costs on business and misleads investments decision making by boosting them on the basis of tax effects instead of economic value. In addition, Australia’s tax system is not responsive. It has been unable to react adequately to the current developments in both local and foreign context. The law in itself is a mass. Several pages of applicable rules interrelate and complicate, therefore dirtying the entire job of the tax system administrators and hindering their ability to simplify. Changing societal expectations Changes in the Australian economic structure and attitudes towards labor force and participation by women have led to greater diversity in job patterns. Australians are also anticipating for improvement of living standards within the community over time. Apart of the continuous increase in demand for health care services, aged care and disability support services, there is also a pressure to increase spending on housing, childcare and education. Changing labor markets For the last three decades the prevalence of full-time male employees in the labor market has led to the rise of part-time work by men, increasing employee participation and women employment, and increasing aged workers (Staff, 2012). Changes in the labor market have led to more flexible job market, preparation for retirement and caring responsibilities. There has also been flexible labor market which has seen most of the women enter into jobs rather than being home managers. The increasing popularity in part-time work has increased the role of income support so as to supplement employees at work. With all these changing dynamics, the society and the entire community are demanding higher standards of education at all levels and better access to higher education. With the emergence of all these issues, there is a need for the review of the design a tax and transfer system that will accommodate all. Therefore, there is an urgent call for tax and transfer system that offers these services at all levels. Henry Tax review of 2010 The Australia’s Future Tax Review famously known as the Henry Tax review was appointed by Rudd Government and later published in 2008. The main objective of the review was to provide a guide in in Australia tax system for the next 20 years. The Henry Review was appointed as one of the particular outcome from the 2020 Australian summit that took place in 2008 (Gianluigi Bizioli, 2011). This review was only confined in a manner that it could consider increasing the rate or widening the goods and service tax base, imposing more taxes on payments to people who were over 60 years of age, or income tax changes that were already announced The Henry Review came up with 138 recommendations categorized into nine themes. 1. Fixed revenue increasing four efficient tax bases i.e. business income, personal income, private consumption and rents from land and other natural resources. Other form of taxes could be retained if in case they serve purposes of particular policies like discouraging traffic congestion or smoking. Either of the taxes that fall into this category should be finally abolished. 2. Designing taxes and transfers to aid in productivity, growth and participation 3. Transparent, equitable and a simple personal income tax: an increased tax-free threshold 4. Adequate, fair, and transfer system that is very supportive 5. Incorporating consumption tax compliance with that of business system 6. Effective land and other natural resource taxation 7. Implementation of retirement income reforms and safeguarding care 8. Towards more affordable housing- considerably raise rent assistance, progressively move to even land tax and remove stamp duty, and progressively shift to a neutral treatment of owner-occupied and rental housing 9. A more understandable, open and responsive tax system It can be seen that few if not none of the Henry Review recommendations were implemented by the Rudd Government. As they way thing are at the moment, the only review that was implemented was the move to produce a resources Super Profit Tax. The proposal was very much controversial and it was later replaced with Mineral Resources Rent Tax after the appointment of Julia Gillard as the Prime Minister. Most of the other remaining recommendations were never implemented. The government dismissed more than 20 recommendations into ‘good grief what were you doing basket’ In drawing the attention to all the issues and recommendations, nonetheless, the Henry Tax Review is by no means advocating reforms in the tax system. Various recommendations if they were to be implemented immediately without considering changes elsewhere, it could lead to losses of disposable income for others in the community. With challenges of implementation of the recommendations in mind, the Henry led team nevertheless decided to state in absolute terms what the future tax system should be. The Australia’s future success majorly depends on the robust approach to the current reform agenda and this will depend on the support from all sectors of the economy. To keep the momentum, the Review recommends all governments and institutions such as Australian Governments (COG) must be charged with the responsibility of pressing ahead and implementing the recommendations on a transparent and unbiased manner (OECD, 2012). Conclusion As it can be mention, the Henry Tax Review of 2010 was intended for the good of the country’s tax system. The Australia’s Future Tax System was applauded by the economic commentators and economist. The report contained 138 recommendations some of which have been implemented while others have been partially implemented. The Rudd government ruled out some of the recommendations proposed by the Henry led commission with some of the reasons that it will not pursue those changes that will affect other sectors of the economy. As the way things are at the moment, few recommendations have been implemented with majority of them being in ‘good grief what were you doing basket’ References Boothe, P.M., 2002. Reforming Fiscal Federalism for Global Competition: A Canada-Australia Comparison. University of Alberta. Chris Aulich, D.M.E., 2010. The Rudd Government: Australian Commonwealth Administration. ANU E Press. Eccleston, R., 2007. Taxing Reforms: The Politics of the Consumption Tax in Japan, the United States, Canada and Australia. Edward Elgar Publishing. Eur, 2002. The Far East and Australasia. Psychology Press. Gianluigi Bizioli, C.S., 2011. Tax Aspects of Fiscal Federalism: A Comparative Analysis. IBFD. OECD, 2012. OECD Economic Surveys: Australia. OECD Publishing. Simon James, A.S.T.B., 2015. The Complexity of Tax Simplification: Experiences From Around the World. Palgrave Macmillan. Staff, C.A., 2012. Australian Master Tax Guide. CCH Australia Limited. Read More