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NEEDED: A Senate tax reform inquiry

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Tom Ravlic outlines his blueprint for a much-needed and forward thinking Senate inquiry on serious tax reform.

ONE of the things I found remarkable when working in not for profit bodies is the way in which you could get warring parties together and get to a productive outcome on an issue that people previously thought was impossible.

An example of this was a forum run in Canberra some years ago in the midst of the public sector accounting debate.

The event – convened by both the National Institute of Accountants and the Institute of Chartered Accountants at the time – brought together the diverse policy and practical and academic perspectives of public sector accounting at the National Press Club.

It resulted in a better dialogue over time on public sector accounting issues within the profession.

The National Institute of Accountants later morphed into the Institute of Public Accountants and led a unique exercise in examining the various issues related to the scalability of accounting standards for those required to prepare financial reports.

All views were heard and – even better – the key regulatory agencies and the Canberra bureaucrats overseeing that area of the law were present. Nothing was hidden. It was all transparent and, when the Institute of Public Accountants submission on what was called "different reporting" went to the Australian Accounting Standards Board, there were no surprises.

On both occasions, people walked away having had the opportunity to share perspectives and they felt they had been heard. Their views were exposed to those that matter. Everybody shared and discussed the issues with some degree of openness and a willingness to understand.

It is time that the same spirit was brought back to the debate over the reform of our taxation laws.

Tax reform has been a political football for as long as this 45-year old mind can remember and the reasons are always plain to see. There are vested interests at play in all levels of our richly diverse society and multiple views that can be held on individual issues, depending on which side of the fence a particular group is on.

Timing is also an issue when is comes to a conversation on tax reform. The most recent attempt at a dialogue on tax reform was the Hockey-led "Re:think" project and the timing for the country was unfortunate. Progress on that project, which started with a first class paper setting the reform context, was scuttled after the leadership coup in September 2015. Everything was on the table, according to the freshly minted Prime Minister Malcolm Turnbull, until such a time as the Labor Party made the table dematerialise with their various and fairly powerful hits at the government’s inaction on tax reform.

Remember the so-called plan to increase the rate and the base of the GST to 15 per cent? The Labor-led debate on negative gearing? No matter what the government did on those issues it was unable to brush off the impression that the Opposition rather than the Government was the lead partner in the tango.

The never ending political point scoring these situations seem to produce would appear to most observers to be the status quo until such a time as a government has a decent majority in both the lower and upper house again.

I do, however, believe that it is possible to bring an adult discussion to the area of tax reform by using the very chamber that has a diverse composition capable of giving all of the issues a decent airing: the Senate.

The Australian electorate has given the country a Senate that represents its wishes and its views at a particular point in time. It is clearly a composition that can provide a solid contribution to the taxation debate were a Senate committee formed to look into taxation reform.

Suspend the disparaging remarks about the Senate and the all too frequent character assassinations for a few moments while I explain how this can be done.

Committee composition

A Senate Economic References Committee inquiry into future directions for taxation reform should be convened and its composition must be drawn from the major parties and every crossbench group represented in the Senate.

No crossbench grouping should be dropped off the list. Every single group needs to be there. At the moment, you have small business people, politicians with experience at state and Federal level and people accustomed to asking difficult questions of advocates, such as lawyers and, of course, there is a prominent journalist. There is even a crossbench senator that has a policy of lower taxation overall. The diversity of policy views exists for a solid inquiry to be conducted by a Senate committee into tax reform.

This composition also means that all parties have the opportunity to take ownership of the outcome of the committee inquiry for the benefit of the country as a whole. The conduct of politicians at the start, during and after such an inquiry will be the greatest indication of how committed they are to the national interest.

Terms of reference

The terms of reference should be kept extremely simple although the issues that the inquiry will touch on will by their very nature be complex. No need to overburden the terms of reference with that complexity.

The committee’s terms of reference should include but not be limited to examining:

  • the current state of the Australian economy and tax reform measures that may assist in improving the overall wellbeing of Australian society as a whole;
  • measures that can be implemented to ensure that Australian taxation regime is as simple and as fair as it can possibly be to individuals and entities resident in Australia;
  • the impact of the taxation regime on individuals, and whether all steps to minimise complexity and also maintain a fair and equitable tax regime are being taken;
  • the impact of taxation on the ability of small businesses to focus on growing the enterprise with an emphasis on determining what additional measures are possible to reduce the compliance burden;
  • methods used by individuals and entities to plan their taxation affairs to minimise tax paid, with the objective of recommending areas of reform where existing laws are deemed to lead to an unfair or inequitable outcome;
  • the status of Australia on the world stage as a tax jurisdiction and the economic implications of current policy settings for the growth of the economy compared with other countries; and
  • the viability of policy setting advocated by community groups, industry associations, academics, individuals and other parties by modelling the impact of reform measures the committee believes have merit, based on the evidence presented to it in person, or through written submissions.

A two-phase inquiry

There is no way the inquiry can consist solely of written submissions and testimony at public hearings. An inquiry into tax reform needs two phases:

  • First phase: The collection of stakeholder views regarding current problems with the tax law and reform options. This is critical to ensure people are given the opportunity to be heard by contributing to the process. There is nothing worse in a consultation process than for the body conducting the inquiry or exposure process to find itself under attack for not providing people with the chance to engage. Once the inquiry is on and running then people have an opportunity to have a dialogue. This phase should result in an interim report documenting the variety of views and opinions put to the committee.
  • Second phase: The committee should review the recommendations put forward by stakeholders and seek the assistance of the Parliamentary Budget Office to crunch the numbers on the various proposals that are put forward so that the committee has not just theory but modelling on which to base recommendations for reform of the taxation laws of Australia. This phase should conclude with the final report of the committee. That report should contain recommendations for change.

The committee will have completed its heavy lifting. It will need to await the government response to the committee. A final report from the committee should be treated as a set of reform proposals. Any response from the government should indicate a willingness or reluctance to legislate. There should be no room for fence sitting

These are the moments in the political life of a country where politicians can demonstrate they have the ticker for serious legislative reform. How many of our political intermediaries actually have the necessary ticker to deliver?

Timeline for the inquiry

The inquiry should take place over no more than 12 months, which would leave sufficient time for the government to respond to any recommendations and put any reform suggestions to the electorate at the next election. There is enough desire for meaningful reform within the community that the use of a committee inquiry to develop proposals for reform that could be taken to an election would be welcomed.

This is the only way in which any meaningful tax reform can take place in the short to medium term without the electorate getting spooked by one major party or another.

It is time to have a sensible discussion about tax reform and the most immediate way to have it is to use the diverse skills and expertise made available to the Australian community in the Senate.

There’s not much you can do in circumstances where people decide to play politics to suit themselves. This requires the adults in the room to behave as "grown ups" in a policy debate rather than engaging in the political equivalent of paintball.

The country needs an inquiry like this on tax reform.

Tom Ravlic is a journalist and governance professional. You can follow Tom on Twitter @TRAVLIC.

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