Henry did his job, but Rudd’s hardly gone near it
Four months after the federal government received Ken Henry’s recommendations for tax reform we still don’t have a clear indication of what that reform might look like.
While the Henry Review unquestionably provides a long term agenda for reform, overall the lack of intent and guidance around the government’s thinking is frustrating.
There is no doubt that Australia needs a simpler, more efficient taxation system.
With more than 125 taxes currently the Government’s has not taken the opportunity to repeal one tax but has instead decided to impose a $10 billion a year tax on the resources sector.
Unfortunately the Government’s response directly addresses very few of Henry’s recommendations. Just four have been adopted, 29 wholly or partially rejected and 114 earmarked for further consultation as part of the ‘mature tax debate’ the Treasurer has called for over the coming years.
It makes you wonder why the Government waited so long to release the report and its response.
The widespread deferral or rejection of most of the report’s recommendations is clearly designed to minimise adverse impacts on the federal budget in 2011-12 to fast track a return towards a balanced budget.
The government has also avoided in the short term politically difficult reforms to road pricing, land tax on family homes, negative gearing changes and alcohol excise reforms.
Most of the Henry’s suggested reforms seek to leave the total tax collected broadly neutral but the reforms target simplicity, equity and rationalization of smaller state taxes to provide efficiency gains.
The proposed changes to simplify individual tax returns are welcome, but with more than 70 per cent of lower and middle-income Australians requiring help to complete tax returns the postponement of these changes are disappointing and should be expedited.
The most widely speculated recommendation of a ‘resource rent tax’ has been adopted and is slated for introduction in FY13.
The Government’s decision to implement a resources super profit tax certainly represents the industry’s worst fears.
The Government has formed a view that it is reasonable for the industry to give back to the community via the RSPT but we need to be very careful that we don’t make our resources industry uncompetitive internationally given the importance of the sector to the Australian economy.
It’s not all bad news, though.
The cut in the company tax rate to 29 per cent in FY14 and 28 per cent in FY15 is slow but steady progress to a more OECD competitive tax regime.
Small business will benefit from an earlier introduction of this tax cut, but adopting Ken Henry’s recommendation of a 25 per cent rate would have further boosted international competitiveness.
The lift from a nine per cent superannuation guarantee to 12 per cent is good news for the country’s savings. By 2020 this move will boost national saving and support long term economic growth.
Overall the Government’s response to 18 months of work by the Treasury Secretary has been vague and hasn’t provided us with a roadmap for structural taxation reform.
If tax reform is as important as the government says it is then we need a clearer and stronger agenda around taking Ken Henry’s recommendations forward.
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