Tax experts urge new Government to review GST, trusts at mooted tax summit

Tax experts urge the new Government to take the Henry Review seriously and use the upcoming tax summit as an opportunity to implement measures that were ignored earlier this year, including reform to the structure of trusts taxation and a review of the GST rate.

But while news of the summit has given the mining industry hope the resources tax will be renegotiated, Treasurer Wayne Swan has dashed those hopes by saying talks will remain within the industry committee charged with ushering the new tax in.

CPA general manager Paul Drum says the summit, which is set to occur before June next year, should be a “quality debate” that doesn’t ignore some of the more crucial recommendations contained in the review.

“The Henry Review is a quality review, and it kind of fell flat with the response. The position we take is that if it takes a tax summit to get some more done with the review, then we are all for it.”

During yesterday’s post-announcement press conference, Swan said independents Robert Oakeshott and Tony Windsor had “indicated they wanted a structured discussion about the recommendations of the Henry Review”.

He added the Government was “delighted to engage in a structured discussion about those recommendations”. Both the new Government and the independents were light on details, but the summit is set to occur before June next year and will involve a number of experts discussing the issues put forward in the Henry Tax review.

Earlier this year the Government was hit with a barrage of criticism after it announced just a handful of measures would be put into law out of the 100-plus recommendations in the Review. These included a drop in the company tax rate and the ability for small businesses to write-off assets worth under $5,000 – these were proposed by Labor earlier this year.

However, dozens of other recommendations, such as lowering the company tax rate even further and raising the tax-free threshold to $25,000, have been ignored.

Although Drum says the CPA does not yet have a cohesive “wish list” of recommendations to put forward at the summit, he warns the Henry Review is designed as a cohesive package of reforms and the Government should develop a “suite” of new measures.

“Our general approach is that everything should be up on the table. We don’t think cherry-picking is the most appropriate way to design a tax system, so we’d like to see a group of measures that overall will enhance productivity and encourage small business growth.”

“Many believe tax reform is only ever about tax cuts, but the Henry Review is about structural reform. There needs to be a sequence and methodology to the overall approach, and it isn’t a tool-kit where you can just pick one or two things out of the box and hope it will work.”

However, Drum says the CPA would like to see some issues including the duplication of state and federal taxes, total tax to GDP ratio, a lower company tax and a review of the GST rate to be discussed at the summit.

Senior counsel at the Institute of Chartered Accountants, Yasser El-Ansary, says the summit should be focussed on robust debate and gaining a consensus opinion on the recommendations put forth by Ken Henry.

“The sorts of issues we’d like to see put forward for that discussion, include around the introduction of the new mining tax and the package of changes announced earlier this year needs to be put on the table for discussion.”

This would include the reduction of the company tax rate to 29%. El-Ansary says the Institute will push to have that dropped to as close as 25% as possible.

“With regards to personal taxation, we’d like to see discussion around moving the tax-free threshold up to $25,000. Anything that we can do to take people out of the tax system that shouldn’t be there, that’s something we should focus on.”

“And duties around state taxes like duties, land taxes and so on, that will make business easier for small businesses and we’d like to see steps taken forward to help relieve the tax burden on businesses.”

“The risk for the Government is that if nothing is done, people will just see this is just another step in the process. We need to avoid that perception and the only way to do that is to make sure it is seen as open, transparent and the government signals its intention to accept the consensus.”

Taxation Institute of Australia senior tax counsel Robert Jeremenko says out of all the Review’s recommendations, the taxation of trusts is one that needs the most attention. He claims the structure for taxing trusts is out-dated and “needs to be brought into the 21st century”.

“Taxation of trusts needs to be rewritten, and we’ve been saying that for a while. It’s a meaty area and one that needs property debate, but we are quietly optimistic we might see some reform with the new Government.”

“The reality is that the summit doesn’t need to be a talk-fest because a lot of the hard work has already been done by the Tax Review. The summits should be focussed on those recommendations and how they may or may not work.”

However, the debate over the mining tax seems to be a thorn in the new Government’s side already. While Swan said yesterday the tax will be kept in negotiations with the Argus committee and will not be up for discussion at the summit, Oakeshott believes a debate on the resources tax is justified.

”As part of an open public discussion with the community and about a genuine tax reform measures, I would. There’s more than one stakeholder in this,” he says.

Independent Tony Windsor also told Ratio National this morning he was unaware the resources tax was not up for discussion at the summit.

“That’s the first time I’ve heard of that,” says Windsor. “I thought it was going to be included in any discussions in relation to taxation and the Henry Review.”

Mining industry reps have already voiced their opposition, with the Association of Mining & Exploration Companies releasing a statement titled “No mandate! No Tax!”. The Western Australia Chamber of Minerals and Energy is also sending representatives to Canberra in order to “directly raise policy priorities.”