In March 2015, the federal government put out its paper, Re:think, to encourage community consultation on the issue of tax reform. In the spirit of its call to conversation, KPMG put forward to Treasury more than 60 proposals for change. Underlying our submission is an ardent belief that Australia needs long-term solutions that go to the very root of our tax system.
A number of our recommendations are far-reaching. Highlights include the establishment of a single administrator to collect all taxes, the abolition of the fringe benefits tax and stamp duty, and linking the income tax rate to average full time earnings (AFTE).
Like all of our recommendations, our proposal to establish a single tax collector is grounded in common sense. We believe that the Australian Tax Office is ideally placed to administrate our taxation system, whether federal, state or local. This would generate efficiencies for individuals and businesses alike.
Using AFTE as a significant measure of our income tax rates makes sense – while representing a fundamental transformation of our tax system. It works to eliminate bracket creep. It is simple and fair.
Bracket creep encapsulates the idea that over time people pay more tax on average due to inflation. In essence, it is inequitable, hurting low income earners disproportionately.
People's notions of what is fair and equitable are based on 'what most people are getting'. By relying on AFTE, currently $80,000, and moving with wage inflation, we can hope to meet this view. We could offer four rates of taxation: 15 percent, 25 percent, 35 percent and 45 percent. Simple and fair.
Other far-reaching recommendations include our proposed replacement of the fringe benefits tax – itself inequitable – and stamp duty. We suggest substituting the former with three new categories: personal and non-personal benefits, and entertainment. The latter, and a number of other inefficient state taxes, would be replaced with a new progressive system for the taxation of land.
Our proposals also address business concerns. We recommend the introduction of three new company structures while suggesting an extension of GST to 15 percent and a reduction of corporation tax to 26 percent. At the same time we recognise that major changes are required to the structure of the current tax system and hence propose a Tax Reform Compensation Commission to advise on permanent and transitional compensation.
Meanwhile, state budgets would 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.
There would also be infrastructure and intergenerational accounts, which would provide a new transparency to our federation.
Ultimately, our recommendations are intended to be creative yet measured. Underlying all of them are the concurrent themes of greater productivity and equity. While many are hard to achieve, they are not naïve.
But is there the political will? Unfortunately Australia faces two traps. The first is an 'insularity trap’: that our policy settings focus inwards rather than out towards the rest of the world. This is ultimately a path to declining living standards.
There is also an 'inaction trap'. Decisive actions may seem too hard in a partisan world with minimal public trust. Change is perceived as achievable only if it is furtive or the result of overwhelming consensus.
We hope our recommendations in response to the government's Re:think paper in some way assist our country to sidestep these two traps.We believe they dare to step beyond the norm.
Rather, these proposals are attainable goals that can be realised if we bring to bear the necessary political will. Certainly, we hope they encourage deep reflection about the very roots of our tax system.
© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.