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Rebecca Archer
Welcome back to Beyond the Numbers with Grant Thornton – a podcast unpacking marketplaces shifts in today’s dynamic business landscape.
I’m Rebecca Archer, and today I am pleased to introduce a special guest host, National Managing Partner for Tax at Grant Thornton, Daniel Kave.
Welcome Daniel!
Daniel Kave
Thanks, Rebecca. It's great to be here today. As you would be aware, we're here to discuss the Economic Reform Roundtable that occurred in Canberra last week. You know, Treasurer Jim Chalmers hosted a three-day roundtable, invited a bunch of leaders from business, government, unions, economic experts, you know, tax experts, to talk about essentially how we can make Australia a’ richer, happier and more productive’ country.
I guess the question is, you know, what rubber actually hit the road and what can we learn from the last three days of talks in Canberra, and to help me unpack, you know, everything that was said and all of the feedback, we've put together a panel of distinguished experts to help have a discussion about, you know, tax reform and the Roundtable.
So, before we begin, let me introduce our tax specialists. Joining me is Principal and the National Head of Private Business Tax & Advisory, Technical Tax – that's a mouthful, David – David Montani. Our Specialist Tax Partner, our National Head of Real Estate & Construction at Grant Thornton, Anika Reside and our Corporate Tax Partner, Mark D’Angelica. Welcome everyone.
I'll just put a little bit of context. We've been talking about tax reform for many years, almost going back to the Henry Tax Reform Paper, you know, many years ago. In reality, not much has been implemented and we're now at a stage where I guess as a society, as a community, as a tax community, we do know that we do need to make structural changes. We've got, you know, a landscape that is almost unprecedented. We've got, you know, obviously demographic change with, you know, a lot of the working base now moving into retirement.
We've got, you know, a well-documented structural deficit where we're spending more money than we're making and we've also got productivity concerns. So, the time is nigh to have a genuine discussion on tax reform, and that's what was the goal last week, and you know, let's try and unpack whether we are going to get that ‘happier, richer and more productive’ society.
So let me bring you in, David, I know you're very passionate about tax reform. What were your initial thoughts about what unfolded last week in Canberra? What was discussed and was it what you expected?
David Montani
Well, the Roundtable was a discussion forum to air ideas. So, you couldn't expect any major policy announcements. That requires the usual processes and ultimately cabinet approval. Some people I know were hoping for announcements to reform GST, super taxation, capital gains and so on. Look, that was never going to happen.
The fact that as a nation we are now having this discussion about reform is very welcomed indeed. After so many years of politicians mostly shutting down such conversations – I noted Danielle Wood who is the chair of the Productivity Commission – she was there in the room. She gave a three-word summation of the Roundtable: ‘It's a start.’ And that's what has to be borne in mind. Look, this is the start of a policy development process the Government has committed to, the outcome from which we are hoping will be some meaningful reform.
Daniel Kave
For you David, what were some of the highlights of what you heard over the three days? Was there anything that came out of the blue to you or was it largely discussing things and initiatives that have been discussed previously? And I guess a follow up to that, what's the process from here in this regard? So where will these ideas be taken?
David Montani
Well, I mean, the Roundtable produced, as the Treasurer called them – some ‘quick wins’. These were a number of initiatives that we know that they had already been on the government's agenda, which is why he was able at the end to say, look, we will do a number of these things that that's fine.
In terms of, you know, what was covered, you know, the three main themes were resilience, productivity and budget sustainability and tax reform. Now, there's a reason why tax reform was left to the last day because that's the hardest topic. So, you know, the first two days – yes – I mean, the discussion around resilience, look, our economy needs to be able to cope with shocks. So, whether that's through, you know, reducing trade barriers and improving capital and labour mobility, now that's good. Day two was productivity. Of course, this was originally a productivity roundtable and then it got expanded to a broader economic discussion, so that was good. Productivity – look, getting more out of the same level of input. So, there was discussion around reducing, you know, unnecessary regulatory constraint bottlenecks and improving competition. So again, that's all good, and the last day, that's when they got onto budget sustainability, which is where, of course, tax reform has its place.
Now, that was the area where perhaps there was the least amount of progress, but really that's not all that surprising, mainly because, I mean, tax reform has been the subject of quite intense political competition for a long time, and there are competing interests there amongst stakeholders, but the important thing is that it's brought these issues to the public attention and it's sparked the interest that the government and other parties are actually paying attention to these issues, and basically, look, they’ve committed themselves to achieving some outcomes, whatever they will be, and ultimately they put a benchmark out there that they can hold themselves to account to.
Daniel Kave
Yes – I think that's. That's the point, David, that we need to see action now, not just words, and, you know, tax reform – we're at this stage, as I mentioned in the introduction, where we're spending more than we make and we've got, you know, a large deficit, and something needs to be done about that.
Let me bring you in, Mark. Now, you know, in terms of how tax reform can help our structural deficit, how can tax reform help increase productivity? You know, what is tax reform and how can we achieve it?
Mark D’Angelica
Yeah, thanks, Daniel.
To your point earlier, I often, when I tell people what I do for a living, I'm a tax specialist, I often ask them, why is tax so complex, and it's because our society and it's not getting any less complex.
I mean, tax has been known to, you know, be a catalyst for revolutions throughout history, and it is a difficult climate at the moment politically. So, I think we can be hard on our politicians at times. However, having said that, I think there's some great opportunities for this generation to make a difference. I think that the themes that come out with our clients is just trying to understand the legislation because it is complex. So, getting some more certainty and some more simplicity with the tax legislation, and, you know, the treasurer did talk about, you know, striving for tax policy that's efficient and equal – efficiency being around, not hindering productivity. So, trying to get our tax base to a position where we're taxing things that are. That are less distortionary.
I mean, I can think of many examples over the years where I've worked on restructures with clients or they're doing some sort of transactions and there might be some taxes that actually distort their decision in terms of, okay, if it's a stamp duty issue, and that can be quite complex to follow. As well. Given that different states have a different definition of what dutiable property is, there's definitely opportunities to try and harmonise things across state taxes.
I think there's obviously tax policy in general. It affects our returns on investment, it affects our family businesses, and then from there it affects how those tax. And how that tax revenue is actually used to spend on infrastructure, which hopefully will help the economy as well. So, I think there's definitely an opportunity to look at reforming the tax regime to tax things that are a little bit more or less distortionary. I mean, we've looked at lots of things that came out of the Henry Review. You know, increasing consumption taxes, which is what's happened in history with Australia, and perhaps broadening the base of land tax. I mean, there's some examples of what might help.
Daniel Kave
And what can we do, I mean, surely tax has a role to play in sort of stimulating business as well and attracting, you know, foreign players to our market, which we're always relying on. I mean, you know, there are things around corporate tax reform that we can do to try and attract, you know, more. More business from overseas or more investment in Australia?
Mark D’Angelica
Absolutely. I mean, it's two sides of the coin. We've got the tax system and also the transfer system, and they need to be working and we need to be looking at both of them. I mean, you've got to look at some incentives and we've got an R&D regime in Australia and obviously some government grants and things that can help business, but we need to make them again, we need to make them a little bit simpler, easier to follow and focus on things that we want to invest in as a society that we think in terms of our economy. What are the things that we actually do better than the rest of the world and try and incentivise that investment, and there's lots of things out there that we can do in that regard.
Daniel Kave
I'll move on to Anika. I mean, obviously personal tax and company tax are really bear a high burden in terms of the revenue that our government generates, but indirect tax is often spoken about as a potential source of reform. You know, you're a GST expert Anika. What needs to be done to reform the GST system or what opportunities are there?
Anika Reside
Yeah, thanks, Daniel, and this is a question that's been raised a lot in recent years, and it's definitely getting a lot of airtime at the moment. So, as you mentioned, right now personal income tax and company tax are doing the heavy lifting when it comes to government revenue, but the model is showing signs of strain.
Company tax is high by international stock standards. Bracket creep is quietly chipping away at people's pay packets. So, what's the alternative? And the obvious one for me is definitely around GST. Many economists are pointing to it and yeah, I just don't disagree with them.
So, the GST was introduced 25 years ago at that flat rate of 10 per cent and it hasn't changed since. It's one of the lowest in the developed world, and when you compare it to the OECD average, which is nearly double at 19.3 per cent, I think that was in December 2024, it does demonstrate how low our rate actually is.
So, there are a couple of things that can be done. The two main options on the table. First one being to raise the rate, you know, and economists are saying you can raise the rates 12 per cent, 15 per cent and some are even saying 20 per cent, and that will obviously increase government revenue.
The other option that we have is to broaden the base, which means including things that are currently GST-free like food, education and health and making them, you know, GST apply to those.
This would obviously simplify the system because GST can be quite complex in those areas, and then potentially raise more revenue as well. If there was, you know, if people didn't want to increase the rate.
The reason governments don't want to do either of those two is obviously the GST system is regressive by design. So, obviously if we're going to increase the rate or broaden the base, we need to make sure that we're looking after our low-income earners. So, we need to be making sure that we're increasing any pensions, welfare payments, low tax offsets, and just making sure that we're absolutely looking after those low-income earners, so it doesn't need to put undue stress on them.
I think that's the main reason why people aren't wanting to do any types of GST reform. And essentially reforming with GST isn't about plugging revenue gaps. It's creating a tax system that's fairer, more efficient and better suited obviously to the economic challenges that are coming.
Daniel Kave
What about a simpler GST system? Anika, I know you spend lots of your time trying to work out what is in the net and what's out of the net. Could we simplify that? I mean, I know you say we're in the base, but is it, is it overly complex at the moment? I don't want to do you out of a job, but is it overly complex?
Anika Reside
I know part of me says leave it as it is because it is so complex. People that are looking at any types of food at the moment, selling any types of food, what's prepared meal, what isn't, what salads are taxable, what aren't. It is really, really complex, and that is why there are so many GST specialists around the world.
Property developers also have all sorts of issues around what's GST free, what's taxable, apportionment methodologies, all of those types of things. So, I think taxpayers and businesses would actually like the broadening of the base because it would make the system so much simpler than what it currently is.
Daniel Kave
Yeah, there's no doubt about that. So, we've spoken a bit about, you know, tax reform and some of what was discussed at the Roundtable. I guess, you know, as I said in the introduction, this is nothing new. This has been spoken about for many years.
David, you've been studying tax reform and been in and about tax reform for a number of years. Why is it so challenging?
David Montani
In Australia, it's much more challenging than it has been in other countries, and the issue is in Australia is that we can't get away from the politics. Tax reform has been the subject of very intense political competition, and basically, over a long period of time, a gridlock has formed over tax reform, and it's not so much over technical matters, but rather it's, it's political, and so, we've had both sides of politics over the years have engaged in the strategy of essentially scaring people over the other side's tax policies, irrespective of the, the merits of those policies, and so it's kind of brought us to a bit of a stalemate now where, you know, neither side will really propose anything substantial because they know what would happen from the other side, and again, it goes in both directions.
So, anything that we put up in terms of what would be, you know, good reforms, good policy, we also have to consider what will motivate the politicians to act, because it's not so much the technical side of what is good policy – we all know what is good policy – almost all economists and tax experts, you get a bunch of those people in a room and I'll come to a general consensus on the kind of reforms we need to undertake. A very different matter is then breaking through the political gridlock and what will actually motivate the politicians to step out from that. That's the big challenge.
Daniel Kave
And I think the challenge as much for the politicians is for us as a tax community who are advocating for these change to actually get out there and advocate for it and explain to the communities why we need it and the ultimate benefits of tax reform because I think ultimately that's what the politicians will look to – the politicians will look to the electorate to support some of this reform and, you know, it is desperately needed and we're doing it and it will be done with the overall objective of, you know, fixing the structural deficit, increasing productivity and for the betterment of our overall country. So, we've got to stop this opposition to, you know, anything that comes up and try and, you know, have a rational discussion and a rational debate, which hopefully the Roundtable initiated last week.
So, we've spoken about the challenges, we've spoken about the reforms. Maybe I'll throw to each of you as experts, if I could give you the Treasurer's job for a day and take out all the political machinations and you could implement one piece of tax reform that would benefit the Australian society. What would it be? Let me start with you, Anika.
Anika Reside
Definitely around GST reform. It's long overdue. I would definitely look at both increasing the rate and broadening the base, and also, as much as it wouldn't be popular, I would also have a look at how the GST revenue is shared among the states and territories, just to make sure that each of the states is actually getting that revenue so they can invest in services and potentially phase out inefficient taxes like stamp duty as Mark mentioned before.
Daniel Kave
You, Mark? Thank you, Anika.
Mark D’Angelica
Yeah, just to Anika’s point, I'd love to see more of a harmonisation of stamp duty or perhaps a reform of stamp duty, given that it's just…I see it every day with clients and affects the economics of different transactions, but I'd also like to see just a reform in relation to employment taxes.
You know, the complexity of the Fringe Benefits Tax legislation, for example, the amount of revenue that it ends up raising, I think just it's overly complex without, without the benefit. In addition, we're seeing a lot of case law and guidance on payroll tax as it applies to medical centres and the gig economy. There was a big Uber case that came out recently. I mean, that's just going to be passed on to consumers. So that's obviously going to be a cost. It's going to hinder productivity and what we can get from our labour resources.
Daniel Kave
And David?
David Montani
This is where packages are crucial. Our tax system is like a jigsaw puzzle. If you hold up one piece, it's meaningless. You have to bring all the pieces together to get a coherent picture, and what that also means is that if you change just one piece in isolation now, the picture is disjointed.
So, packages are important where we consider all the components of our tax system holistically and we make changes to them in a coherent manner. So, exactly like what both Mark and Anika was saying, it's not just any one individual change, it's a package of changes, and look, the big one is that tax mix switch – switching from our over reliance on personal and company tax towards GST, but that is always accompanied with, of course, appropriate shielding for low income people against the regressive nature of the GST.
Look, that's the linchpin. That tax mix switch is the linchpin on which any wider reform depends on. That's what would enable us as a package to do other things like perhaps paring back a little on the over generous taxing of superannuation. We could perhaps appropriately target curbing of negative gearing to properly incentivise housing supply. We could perhaps pare back the 50 per cent discount on capital gains, which is again regarded as too generous. Part of all that as a package is where we can get outcomes that coherently and holistically produce the outcomes we want to see, which is basically incentivising more desirable economic behaviour. And from that we get greater productivity, greater wealth, happier, more compassionate nation, just like you mentioned.
Daniel Kave
I couldn't agree more, David. We have to look at this package. I mean, the bracket creep that we've seen in personal taxes over the last few years has really made a big impact on the level of taxes that are being paid by each household, and I also think as a Corporate Tax Partner that the corporate tax burden for Australian companies is large.
I mean, we've got a complex system which is two different tax rates. So, we've got 25 per cent for those companies that have aggregated turnover below $50m, and a 30 per cent tax rate for those with aggregate turnover above, and not only does that provide complexity, but it's a disincentive for foreign corporations to invest into Australia. The 30 per cent rate compares pretty poorly with the OECD average rate of I think it's about 21 per cent now, a lot of our trading partners have corporate tax rates well below the 30 per cent that our companies bear.
So, I think that area – just to echo David's point – does need reform desperately. We need to welcome investment into Australia and this is doing the exact opposite.
David, I just wanted to touch on One thing we haven't mentioned today, which is on, you know, potential reforms that have been spoken about to trust taxation. Do you have a comment on any of those proposals specifically or what was discussed or how that can be taken forward into the future?
David Montani
I find that, I mean, this is essentially a rerun of what was attempted to be implemented in 2001. There was an attempt to bring in entity taxation, but it was ultimately abandoned, and the idea was basically to essentially tax trust-like companies, so they pay the company rate and then when trusts, you know, make distributions to beneficiaries, it's kind of like paying a frank dividend.
So, then you get at least the, the, the corporate tax rate as, as a minimum. This was when franking credits weren't refundable on trust income. But I do find that, I find that discussion around that tends to be, in my mind, it's a symptom of other more fundamental issues that aren't reformed. So, for example, again, if we had that, you know, the linchpin to any wider reform is that tax mix switch.
If you have that, then, you know, we are shifting our overall tax collection away from income tax, which you can think of as being a bit more fluid. There's more ability to plan and dare I say, you know, avoid that tax. When that switched over to GST, not even the most practiced tax avoider can avoid tax GST, and so, when we, we shift the tax away from where it's, there is greater ability to avoid it to where there is less ability to avoid it, what we're left with in income tax is there's less room to move, there's less room to play around with different tax rates and people on different levels of income.
So, when you get that fundamental fixed something like taxing trusts in some form is of, I guess, of lesser importance, but having said that, once you've got those fundamentals sorted, it's then much easier to have a conversation like that because it's really no longer a symptom of something that's not being addressed. It's now more so building upon a fundamental that you have addressed.
Daniel Kave
No, absolutely, Mark. Maybe I'll bring you into the conversation here. I was at a couple of BBQs on the weekend, and I always get asked the question, what do I need to do now? I mean, what are they doing? What can I do? We get asked a lot of questions. If they do bring in changes to trust taxation, or they do increase the GST rate and businesses are trying to plan and get ahead of the curve. Is there anything you suggest people do in terms of structuring their businesses or their affairs or in their planning to account for potential reform that's on the table?
Mark D’Angelica
Yeah. So, I mean, I think that the key is, first of all just to keep the conversation going in terms of what, you know, what reforms or what things might actually help them. So, we can, as tax advisers, we can better understand what their business needs are, and we can sort of go through that consultation with government. So, I think that's probably one part of it.
But the next part of it is always just to look at the horizon. What are your growth ambitions? Where does that then leave you as a business in terms of where you sit in, you know, your tax rates, your aggregated turnover, whether you want some succession planning and that can then dictate an appropriate structure, or whether you're looking to expand offshore, whether you're looking to corporatise from a family business to a corporate because you're looking to have some sort of exit event or something like that. You just need to be aware of all the tax implications going forward of the different structures and what your tax rate might be. I mean, we don't have a crystal ball. We know you do the best of what with what we have at this point in time.
But some of the things that we've mentioned today, I mean, I'm talking to clients, I'm always just letting them know about things that could potentially be on the horizon, which may impact their decision making.
Daniel Kave
Yeah, and that's a great point, Mark, and probably a good place to finish. There is a lot of debate around at the moment. There's probably a lot of uncertainty around at the moment. So, you know, I really urge everyone listening, stay close to your tax advisers, stay close to your accountants, and, you know, they'll be able to assist you in navigating through whatever changes do occur.
I guess one closing comment from me is that, you know, given all of this speaking and, you know, revisiting some of these really, really good ideas, I think the time for action is now. You know, it really is a shout out to, you know, not only the politicians but, you know, the community at large to try and get behind and support this tax reform so that we can make some meaningful change, and hopefully the roundtable last week was the start of that.
So, let's hope that next time we get together we can speak about some more specific proposals and start advocating for real change and start planning for it.
So really appreciate everyone's time – Anika, Mark, David – thank you for joining us and to all of you listening, we appreciate your time and feel free if you have any questions to reach out to your Grant Thornton contact and we'd be more than happy to help. Thank you.
Rebecca Archer
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