Discussion Paper on Tax Regime Overhaul Released

Australian Treasurer Joe Hockey has published Re:think, a discussion paper that marks the launch of the long-awaited Tax White Paper process.

The discussion paper begins a formal government process for considering future directions for Australia's tax system. The paper provides information about the challenges the system faces, identifies potential opportunities for reform and points to some of the "trade-offs" that would need to be considered. The Government is seeking feedback on whether the current tax system can be refined or whether it requires more fundamental change, and where fairness can be improved. The discussion paper asks how important it is to reform taxes to boost economic growth, and to what extent reducing complexity should be a priority.

 

Australia relies more heavily on income taxes than other, comparable countries. Income tax levied on individuals comprised 39.2 percent of total tax revenue in 2012, while corporate taxes made up 18.9 percent of the total. By 2024-2025, the percentage of taxpayers in the top two personal income tax brackets is estimated to increase from 27 percent to 43 percent. It is anticipated that two million more taxpayers will be in the third income tax bracket (taxable income from AUD80,000 (USD80,788) to AUD180,000 (USD181,773) in 2024/25, compared with 2014/15 levels. The Australian Government raises around 81 percent of total tax revenue in Australia. State and territory governments receive 45 percent of their revenue through transfers from the Commonwealth, including all goods and services tax (GST) revenue. In 2013/14, state and territory governments generated around 31 percent of their total revenue from the taxes they administer

The document asks the following major tax-specific questions:

  • How important is Australia's corporate tax rate in attracting foreign investment and how should Australia respond to the global trend of reduced corporate tax rates?
  • Could the taxation of dividends be improved, and is the dividend imputation system continuing to serve Australia well?
  • To what extent does the tax treatment of capital assets impact on investment, and would alternative approaches be preferable? To what extent does the tax treatment of losses discourage risk-taking and innovation, and hinder business restructuring?
  • How could the current tax treatment of intangible assets be improved?
  • To what extent does the tax treatment of foreign income distort investment decisions, and to what extent should the tax system be designed to attract particular forms of outbound and inbound investment?
  • How can transfer pricing be addressed without imposing an excessive regulatory burden and discouraging investment?
  • What are the most significant drivers of tax law compliance activities and costs for small business?
  • To what extent are the rate, base, and administration of the GST appropriate?
  • To what extent does Australia have the appropriate mix of taxes on specific goods and services?
  • Is the interaction of the personal and business tax systems a problem?
  • What should the income tax and fringe benefits tax systems look like?
  • At what levels of income is it most important to deliver tax cuts?
  • To what extent is tax planning a problem in the individual income tax system, what creates incentives for tax planning, and what can be done to combat it?
  • To what extent does the fringe benefits tax system strike the right balance between simplicity and fairness, and are the concessions and exemptions in the system appropriate? How appropriate are the tax arrangements for superannuation in terms of their fairness and complexity, and how could they be improved?
  • What are the relative priorities for state and local tax reform?

The consultation on Re:think is open until June 1, 2015. The responses will inform the Government's tax options Green Paper, due to be released in the second half of 2015. The Government will seek further feedback on these options, before putting forward policy proposals for consideration in 2016.