Unprecedented changes across all aspects of personal, capital and business taxes and to the way tax is collected are proposed by KPMG Australia in its submission to Treasury on tax reform, published today.
Peter Nash, KPMG Australia Chairman said: “If serious tax reform does not take place over the next few years, Australia risks being uncompetitive internationally. KPMG’s submission to Treasury contains some far-reaching proposals because the situation needs innovative solutions, not just tinkering at the edges. This is a once in a generation opportunity to get tax reform right and as a country we need to set the tax system on a solid footing for the long term.”
The paper proposes that all taxes would be collected by the Australian Tax Office (ATO), which would subsume all tax collection rights from the states over the next 8 years, with federal government bearing the administration costs. This would generate substantial efficiencies for businesses and individuals.
KPMG’s proposals include:
On business tax, the report calls for an extension of GST to 15 percent; a reduction of corporation tax to 26 percent; introduction of new small business and innovation company structures to boost these sectors, together with enhanced R&D offsets. The imputation system would remain but be reviewed in 2020.
There would be major changes to the structure of the current tax system: a Tax Reform Compensation Commission should be established to advise on permanent and transitional compensation. State budgets should be held in March to allow them to feed into a new series of Combined Australian Government Accounts to be released at the time of the Federal Budget in May, which would detail federal, state, territory and local government revenue and expenditure. There would also be infrastructure and intergenerational accounts, which would provide a new transparency to our federation.
Importantly, that the submission calls for these changes to be made over an 8-year time period. The 3 years 2015-18 would be spent bedding down the details of the proposed reforms, including suitable compensation packages. 2018 is the year intended for the commencement of the legislative measures, with a five-year transition period for implementation ending in 2023.
David Linke, KPMG National Managing Partner – Tax and Legal, said: “We accept that major change cannot happen overnight and believe that eight years is a realistic timeframe to secure the necessary political agreement. A key aspect of our thinking is to improve the current tax structure between states and federal government, which is a significant cause of inefficiency.”
“That was one of the main issues highlighted in our survey of over 200 CEOs, CFOs, non-executive directors and tax professionals collated by KPMG as part of the consultation process which informed our submission. This significant business input has enriched our paper and we look forward to discussing our proposals in the upcoming series of debates and forums on tax reform, which will rightly involve a wide variety of constituencies,” added Mr Linke.
KPMG believes that one critical impediment to reform that must be solved is GST – and the states should be advised that the current need for unanimous agreement on GST changes, promised in 1999 by Prime Minister Howard, should have a limited life and end in 2019.
A vital source of productivity gain in the Australian economy and society is greater female participation in the workforce and KPMG believes the interaction of the tax and transfer systems is an integral part of increasing this benefit.
David Linke said: “Changes to the tax system need to be viewed through a gender prism. Women have less superannuation than men and are more likely to derive interest income than dividends or capital gains. It is crucial that the taxation of childcare costs is overhauled and that the system taken as a whole encourages female participation”.
KPMG’s proposals include:
Peter Nash said: “As well as proposing solutions for all the various tax areas, we have also examined the system as a whole, which is not working optimally. Given the importance of a well-functioning tax system to the country, the legislative process cannot be a political football.
Therefore we propose a Tax Reform Compensation Commission, including members from both sides of the House, supported by Treasury, which would evaluate and model the impacts of tax reform and recommend measures, including changes to transfer payments, to ensure equity in the system. An independent body could better withstand the difficult politics of tax change and bring an objective approach to the process.
”David Linke added: “We also believe better presentation of budget information would give rise to more informed community discussion and make change easier. Accordingly we recommend Combined Australian Government Accounts which would disclose total revenue by source and function, and other new accounts and simplicity indices to measure the ease of doing business in Australia.
“None of these changes will be easy, but we believe they would be equitable and put the Australian tax system on a long-term sustainable path and away from the current lop-sided reliance on bracket creep and stamp duty to pay the bills” he said.
Senior Communications Manager, KPMG Australia
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