What is Australia's future tax system?

The Federal Government has announced its review of the country’s taxation system under the guise of the heading “Australia’s Future Tax System Review”.

The review will be conducted by a panel of five headed by Dr Ken Henry of Treasury.

The review is relevant to all business owners because it is so broad reaching and fundamental. In essence, the whole of the Australian taxation system is under review, in order to produce a system that will deal with Australia’s demographic, social, economic and environmental challenges in the future.

Initial submissions by the public can be made up until 17 October 2008. Grant Thornton intends to lodge a submission which we would like to be reflective of the views of our client base. Submissions we have made in the past to Treasury have been well received and have been recognised as echoing the voice of privately held business in Australia. Again, we intend to participate in the debate over the make up of our taxation system, all the way through until the final report of the review panel is completed by the end of 2009.

We would welcome comments from any of our clients in relation to particular ways in which they believe the system should change.

The Terms of Reference for the review recognise that the taxation system should be economically efficient, provide equity to all taxpayers and minimise complexity. The review will consider things such as:

• the appropriate balance between the taxation of returns from work, investment, savings and consumption
• efficiency in the “tax transfer” system, which essentially is the system by which consolidated revenue is redistributed through means such as social welfare and security
• appropriate taxation administration arrangements across the Commonwealth and the States

Interestingly, the terms of reference premise that:

• the rate or base of GST will not be increased
• tax-free superannuation for those over 60 should continue
• announced reductions in income tax in coming years should be preserved

It is also worth noting that currently there are 99 Federal taxes and 35 State taxes.

Revenue from the top 10 taxes constitutes 90% of the total revenue base, which means there are a lot of taxes that do not significantly increase the revenue base and that may be unnecessarily complex and frustrating for taxpayers.

However, overall, Australia is the eight lowest taxing OECD country, which might influence the panel to not recommend reductions in overall taxation. It is more likely that any reduction in headline rates of tax would be made up by reallocations of other taxation bases. The challenge is for the review panel to make some significant contribution to the reform of the taxation system at a time when Australia needs to increase its international competitiveness.

One thing that is certain is that recommendations to reduce the complexity of the system and the cost of compliance for privately owned business will be common ground in the major submissions.


If you have any feedback that you would like Grant Thornton to include in its submission, we encourage you to contacts us via the details below.

Author: Peter Godber, September 2008

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Alternatively, phone Peter Godber directly

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