Tax Forum ideas: The likely, the unlikely and the very ambitious

There’s just one more sleep until the Government’s Tax Forum kicks off in Canberra and the ideas to improve Australia’s tax system keep flowing in.

Treasurer Wayne Swan has stressed “nothing is taboo” and “no topics have been banned,” but many commentators says the Government’s low-approval rating and commitment to turning that $47 billion deficit into a surplus by 2012-13 mean nothing much is going to happen other than talk and more talk.

So here is SmartCompany’s list of the likely changes to come out of the forum, the ideas that are unlikely to get up and the suggestions that have been thrown out there, usually from special interest groups.

The likely

It’s likely the Government will permit loss-making companies to claim back tax paid on the prior year’s taxable income, a suggestion contained in the Henry Tax Review and welcomed by tax experts given the difficult economic conditions.

Also possible is an independent tax reform body and more scrutiny from the Australian Taxation Office.

The unlikely

Calls for the Government to heed the Henry review’s recommendations for a 25% company tax rate and simplified income tax settings are coming in thick and fast, but Swan took to defending Australia’s tax settings at the weekend, suggesting the Government is not in a huge hurry to do either.

Swan pointed out that Australia is the sixth-lowest taxing nation as a proportion of gross domestic product of the 34 members of the Organisation of Economic Co-operation and Development, and individual tax rates are behind the British, the Americans and the Germans.

And with both Labor and the Coalition ruling out an increase to or broadening of the goods and services tax, calls to the contrary are likely to fall on deaf ears, irrespective of their merits or concerns about how to fund our ageing population.

As the Liberal state Governments in Victoria, Western Australia and New South Wales flex their muscles against the Federal Labor Government, there are dim hopes the two systems of Government will reach a quick agreement on removing inefficient state taxes such as insurance taxes, payroll tax, motor vehicle taxes and conveyancing stamp duties. Swan put the ball in the states’ court this weekend by saying they “have to step up to the plate”. 

Writing in The Drum, Judith Sloan, chairman of National Seniors Australia, says “the most that can be hoped for from the two days of talking is a commitment to look at a small number of issues – the treatment of tax losses and a shift to alcohol-content taxing of wine are possible examples. Beyond the introduction of the carbon tax and the MRRT [mining resource rent tax], it seems unlikely that this Government would even consider any radical changes to the tax system.”

The ambitious

Fresh from US President Barack Obama’s ‘Buffett tax’, venture capitalist Mark Carnegie says a crackdown on tax loopholes could fund a sovereign wealth fund. Carnegie has told The Australian newspaper that the richest 15% of Australians could afford to pay 15% more tax, not by lifting tax rates but by closing off loopholes. “We should take some of the prosperity we’re enjoying at the moment and put it into a fund to invest on behalf of future generations.” Calls for a sovereign wealth are not new; the Henry review also recommended the abolition of most tax breaks for income alongside simplified income tax settings where income up to $25,000 would be tax free, above that would be taxed at 35% and above $180,000 at 45%.

Across to housing, Miranda Stewart, co-director of taxation studies at Melbourne Law School, says the taxation of housing is ripe for reform. Writing in The Conversation, Stewart says the capital gains tax exemption for the home should remain, but income tax rules for investments, including rental real estate, should be looked at.

National Seniors Australia’s Judith Sloan adds there’s a case for lowering the company tax while taxing the implicit value of the stream of housing services received by home-owners – but acknowledges any move to tax the family home is “potentially fatal for any Government.”

Grattan Institute economist Saul Eslake has another idea that would prove unpopular: remove the Howard Government’s decision to allow tax-free access to super for those aged 60 and above.

Finally, there’s a glimmer of hope for further hope for small business, with AIG chief Heather Ridout calling for assistance to entrepreneurs and early-stage enterprises.

“We have got to start to create our future. We can’t just dig it out of the ground and grow it, however important that is. I think Australia needs to actively embrace this agenda so we can become the great knowledge-based democracy in Asia.”