When 150 business and union leaders, academics, accountants, bureaucrats and politicians gather this October for the long-awaited tax summit, few believe it will result in rapid change. This is tax policy after all. As someone once observed: “it’s not rocket science, it’s more complicated”.
While the summit, or “forum” - as the Government now calls it having been dragged to it in the deal with independents to form a minority government - will be more substantial than Kevin Rudd’s celebrity-heavy 2020 ideas summit, only the sunniest of optimists expect actual measurable change to come from it in the short term.
Rather, the hope now is that approaching four years since the then Treasury Secretary Ken Henry started the process, the Government will map out the field.
Such has been Australia’s mostly rhetorical march through this dull but worthy topic that one has to look all the way back to 1985 - more than 25 years ago - to find a real appetite in government for bold new ideas on the tax front.
The Howard Government to its credit brought in the 10 per cent goods and services tax at the beginning of the last decade, but the concept of a consumption tax was first litigated in a broad political sense, 15 years before by a reform-oriented young treasurer Paul Keating.
Hopes were thus pretty high when Wayne Swan announced on the back of his first Budget in May, 2008 that the Government would go back to tors via a comprehensive, “root and branch” review of the tax system.
With the notable exclusion of the GST - Labor had won just months before on a promise not to touch it - the Henry Review was to look at everything.
But by late 2008 however, as Dr Henry and team beavered away, all talk of economic conservatism, or even long-term strategic planning, necessarily gave way to a more immediate problem: how best to shovel billions in stimulus spending into the economy to stave off recession.
Australia survived well but the public policy reform agenda was set back.
That global cataclysm of course, is not over.
Just this week assorted youths, anarchists, and mothballed public servants were hurling pieces of pavement in a central Athenian square at riot police as the Greek economy teetered on the edge of bankruptcy.
The spectre of a double-dip global recession has also re-emerged especially as the last century’s engine room, the consumer-driven US economy hits its credit card limit again with public debt now approaching 100 per cent of GDP.
But the GFC only partly explains the faltering progress to tax reform here.
The reason Messrs Rudd and Swan sat on the Henry Review for months before releasing it was that they wanted to have their response to its key recommendations ready. Not doing so, they feared, would leave them vulnerable to a rule in / rule out game.
But if such preparedness was meant to smooth the path of reform, or merely protect the Government, it was a colossal failure on both counts.
The highest profile item of Henry’s 138 recommendations was a call to up the “rent” to obtain bigger slice of the pie from the nation’s mineral bounty. The answer, the Resource Super Profits Tax, made good sense but its political sell-job proved to be beyond the Rudd Government.
Its steep 40 per cent rate on the “super profits” of resource companies enraged miners sparking a well-funded prime-time advertising campaign which plunged the Rudd prime ministership into crisis.
It took a leadership change and a new PM to scrap the RSPT, and negotiate a replacement applying only to coal and iron ore, called the Mineral Resources Rent Tax.
This was the most expensive political retreat in Australian history. Instead of raising $100 billion over ten years, the MRRT will raise something like $40 billion over the same time.
And that’s assuming it becomes law. An exposure draft is currently on the table but the Greens, who from yesterday hold the balance of power in the Senate, and at least one of the independents in the lower house, Andrew Wilkie, want the Government to move back towards the tougher RSPT.
Other less controversial aspects of the Henry Review have been adopted or are in train including a cut to the company income tax rate from 30 cents to 29 cents - timed to coincide with the MRRT introduction 12 months from now - and the idea of a standard $500 annual work expenses deduction without receipts for PAYE taxpayers.
Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, says industry experts welcome that and other adjustments and remain hopeful that the forum in October can put direction and a bit of oomph back into the reform process.
“We’re at a critical point where some decisive action needs to be taken to really map out where we are going to go in the future,” he says.
“Ken Henry’s done all of the hard work around analysing the current tax and transfer (welfare) system, he’s looked at the ins and outs, critiqued aspects and put forward suggestions of where substantial change needs to take place.”
Mr El-Ansary lists the challenges the Government was responding to when it set up the review as: the ageing population; increasing healthcare costs; pressure on the budget bottom line.
“They all continue to be challenges but we haven’t really taken decisive action to map out the blueprint for how we are going to respond to those challenges and I think the opportunity in October is there for us to do that.”
The Government plans to release a “framework” document next month to provide the tax forum with parameters for discussion.
“That will hopefully give us a good handle on what the federal Government expects October to be all about,” says Mr El-Ansary.
“What we’re unsure about is how committed the Government is to using the October tax forum as an opportunity to build a long-term platform for change.”
It’s a good question and one to which Mr Swan began to speak this week as he talked of a decade-long reform push.
“I’ve delivered four budgets now, and over that time I’ve had a lot of interest groups walk through the door and tell me why they should get a tax cut and how someone else should pay for it,” he said.
“Having everyone in the one room at the tax forum should bring into sharp focus the point that people can’t simply pitch up a tax cut and expect someone else to pay for it.
“If participants work from this basis, then I’m confident we can get some really good progress out of the tax forum.”
Now wouldn’t that be something?
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