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HANSARD EXTRACT

Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006: Second Reading

16 August 2006

 Mr HAYES (Werriwa) (12.13 p.m.)—Before us today we have a Clayton’s tax simplification bill. This is the sort of bill you have when you are not serious about tax simplification. The Treasurer introduced the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 in June and he did so with much fanfare. He made the claim that the bill would repeal over 4,100 pages of inoperative tax law. He claimed that a third of the income tax law and over half of the Income Tax Assessment Act 1936 was gone. He claimed that this was a major reduction in the volume of tax law. He made all these claims, but he was wrong, and he knew he was wrong. I suspect we have heard from only one member of the government’s backbench on this issue because, quite frankly, they know it is wrong as well. They do not want to come into this place to defend the Treasurer’s exaggerated claim.

The member for Moncrieff came into this place with a view to taking some responsibility for the unpredicted resources boom and the commodity prices that we are currently enjoying—to which the boost in employment is attributed. But, to his credit, he indicated that the government did not predict the skills shortage and also that the government made cuts to TAFE and further education and abolished the Australian National Training Authority. All these things just fell into the government’s lap, yet if you listened to the member for Moncrieff you would think we were riding on the back of a resources boom as a consequence of the election of the Howard government back in 1996.

I am sure that no other member believes that—unless it is on the ministerial script for today—but I thought the member for Moncrieff put in a sterling effort to back up the unsustainable claim that this is about reform. They should not make these extravagant claims, because they know this is not reform—this is window-dressing, at best. If the Treasurer counts numbers in the same way that he relies on this as amounting to a reform of the tax act, it is no wonder that he was not serious about making a leadership challenge. We need to get it straight that 4,100 pages will not be removed from the income tax act as a result of this bill. The major publishing companies have already agreed to print the archive volumes of the repeal provisions. The repeal provisions will not disappear from the shelves of the tax practitioners; they will not disappear from our life to that extent. The pages might be moved to a different volume of the tax act, but they will remain on tax practitioners’ shelves gathering dust.

This bill does not act to reduce the complexity of Australia’s tax laws. The Treasurer knows that. He knows that the only way to reduce the complexity of the tax laws is to change the operative provisions. Repealing inoperative provisions and shoving them into another volume that gathers dust in the corner of someone’s office does not reduce the complexity one little bit. It does not make the system simpler. The simplicity of any system, particularly a tax system, will always be driven by the provisions that operate, not by the provisions that do not operate. A bit of window-dressing to the act, or a bit of pruning of the pages, does not amount to introducing simplicity into our tax system.

The things that matter to anyone who operates any system are the things that generate operations. So, unless we give attention to simplifying the operative provisions, we are simply masquerading this notion of simplification. The driver of the complexity of the tax system is and can only be the operative tax provisions. The complexity of Australia’s tax system will only ever be reduced if we address the operative provisions of the tax act. The system will only ever become less complex if the government gets serious about tax law and does not just tinker with it when it suits it.

As has been pointed out previously, there are currently more than 240 tax expenditures—tax breaks, concessions and the like—which erode the revenue base and make the system more complex. In the 60 years between the introduction of the Income Tax Assessment Act in 1936 and this government coming into power in 1996, in excess of 150 additional tax expenditure lines have been created. In the decade this government has been in power, another 89 have been added to that mix. In addition to these concessions, in 2000 alone nearly 90,000 private, binding tax rulings were given. These rulings create precedents which add to the complexity for tax practitioners who interpret the tax arrangements and, indeed, to the complexity of the act itself.

You do not need to be a tax expert to work out that the system has become complex. Blame for the complexity of Australia’s income tax system can pretty much be laid at the feet of the current government and, more particularly, the Treasurer. Yet the Treasurer comes into this place and says the bill will slash dozens of pages from the tax act. If this is the criterion for removing the complexity, I fear it will never happen whilst this government holds office. The Chairman of the Productivity Commission, Gary Banks, said in 2003:

At nearly 7,000 pages, the Income Tax Assessment Act—

the 1936 and 1937 statutes read together—

is now nearly 60 times longer than the paltry 120 pages that did the job when it was first introduced in 1936

He goes on to say that, notwithstanding the admirable recent attempts at tax simplification, that is the position. I would also like to quote something the Chairman of the Productivity Commission said which was not quoted by the member for Rankin but which adds a little more colour to this:

To take a fanciful turn, were this rate of growth to continue unabated, I am informed that by the end of this century the paper version of the Tax Act would amount to 830 billion pages; it would take over 3 million years of continuous reading to assimilate and weigh the equivalent of around 20 aircraft carriers!

That is not my view, and I am sure he is taking slight licence in saying that, but it is not bad commentary coming from the Chairman of the Productivity Commission. He was not actually seeking to heap accolades on the government over their management of the complexities of the taxation act at that point. I agree that the predictions are somewhat fanciful; nevertheless, they highlight that unless we get serious in our attempts to reduce the complexities of the tax act—if we just tack bits on here and there—we simply will not be addressing its shortcomings and the act will simply grow. This government has become a serial offender when it comes to tinkering with the tax act. It has added bits here and bits there to accommodate special interest groups or their mates, and the act has grown in its volume as a direct result.

The amendments, layer upon layer, can only produce complexity. That is exactly what this government has presided over when it comes to the tax act. Sure, the bill before us does involve the rewriting of some provisions. However, as the rewriting still requires navigation between a 1936 act and the 1997 act, probably not much can be said for its quality. The government talks about efficiency and simplicity but if its performance is measured by the impact it has had on the tax act it has to be regarded as a dismal failure.

Labor moved a quite complex second reading amendment to this bill, one which I support. It is based on some of the uncontroversial recommendations of the Taxation Institute of Australia in its report Beyond 4100. I am sure that the members opposite are aware that recently the Taxation Institute released this report, which outlined a range of areas in which there could be real reform in income tax. While the bill could be best described as a bit of plastic surgery—although, unfortunately, when you come out of this operation you still are wearing the same nose as when you went in—the Taxation Institute was proposing real and substantive reform to the taxation act. It is true that some of the institute’s recommendations would be more readily accepted than others, but it is certainly a worthwhile contribution to the ongoing debate about reform of the Australian tax system.

That said, the most uncontroversial recommendations of the report recommend that provisions that are almost never used and those that can not be readily enforced should be repealed or redrafted. These provide the basis of Labor’s second reading amendment and I encourage the government to support the amendment and support a genuine attempt to simplify the Australian tax law.

Tax is never far from the minds of working Australians, especially at this time of year when everyone seems to want to make their annual trek to the accountant’s office to file their return. But I am sure that many would love to be able to file those returns themselves, to have a system which was less complex, a system that would lend itself to being user friendly and where people could go about their business while paying to the Commonwealth their fair share of reasonable tax. I am sure that that is what most workers would prefer to do.

The growth in the volume of tax law and its increasing complexity, which brings with it compliance costs, continues to be a concern for taxpayers and taxation practitioners. There seems to be a litany of tax bills presented in this place as the government goes about its way of tinkering here and there, making modifications to the taxation system. As it includes and excludes various provisions, and as it attempts to curb tax minimisation on the one hand and open up new opportunities to avoid paying tax on the other, these complications continue to expand.

The government has come in for some criticism of late, as you would recall, when it comes to tax. Bear in mind, we all know that this government is the highest taxing and highest spending government in Australia’s history, and I do not think that is an underserved criticism. I think there is some accuracy in that statement.

Interestingly, the OECD Economic Survey of Australia Volume 2006/12, released in July of this year, made some comments not only on Australia’s fiscal position but also on its tax system. The OECD says:

Tax revenues for the immediate year ahead have been under-predicted in each of the last four budget years by an average of $6.8 billion, about 0.8% of GDP, with the fiscal balance under-predicted by $7 billion.

In addition to this interesting comment on the systematic failure of the government’s revenue predictions, the OECD makes a couple of other interesting comments when it comes to the taxation system itself. In that regard, the OECD says this:

Recent cuts in the higher rates of personal income tax and the widening of thresholds are to be welcomed. However, the extent of the changes in the 2006/07 Budget suggests that the focus of any future tax cuts should switch to reducing high effective marginal tax rates faced by many households in the lower income deciles.

That’s correct—the OECD is saying that the focus of tax cuts should be switched to reducing the high effective marginal tax rates now worn by people in our lower income households.

As I read it, I could not help thinking that I had heard that sort of suggestion before. In fact, I had. That was actually Labor’s response to the squandered opportunity that was the last budget when this government sold Australia out. It was Labor’s response to a budget that once again spectacularly failed Middle Australia and spectacularly failed working families in this country. It is a call I have made in this place before, and I will be making it again and again until this government gets serious about fixing the system. When you put in, you should be entitled to expect to get your fair share out.

Of course, suggesting that the focus of the tax cuts should be on reducing high effective marginal tax rates is not the only comment the OECD makes when it comes to Australia’s taxation system. Other interesting comments made by the OECD on the government’s opportunity in relation to the complexity of Australia’s tax law include:

The government should continue to seek opportunities to reduce the complexity of the tax law.

That is not talking about how we simply go and prune a few pages off the tax act or how we can take a few pages out of that act and store them in an archived volume somewhere else where you will still have to refer to them to navigate through the taxation system. What the OECD is saying very clearly is that this government should take those opportunities to address the complexity of Australia’s tax law. If anything, quite frankly, this government has got to wear that criticism.

Everyone will recall that last year, with much fanfare and flourish, the member for Wentworth released his own contribution to the Australian tax debate. He presented some 280 options for tax reform last year, yet today he is silent. It is only the member for Moncrieff who decided to come and back up the Treasurer on this piece of art. I can only imagine that the member for Wentworth is still sitting in his office thinking that the Treasurer may have somehow overdramatised his claim that this bill was the culmination of a serious effort to reduce the complexity of Australian taxation.

To give him his credit, the member for Moncrieff did come down to the chamber to try to make a spirited contribution in this debate. As I said earlier, I think all he wanted to point out is the fact that the country is presently riding high on a resources boom and, as a consequence, this government wants to claim all the responsibility it can for that. He was the lone voice. If the Treasurer can only muster people like the member for Moncrieff to run a diversion— (Time expired)

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