Reform of the tax system? It is essential to undertake this activity as it is well overdue. The government should be congratulated on the breadth of the approach and the ambition of the goal.
The complexity of the current tax system has grown over the last 40 years as bits are added and pieces removed. All depending on the condition of the economy, help on who is in power, order the cleverness or not of the Treasurer of the day, remedy the philosophy of the government of the day, what the States are up to and manipulation by some big businesses.
What is pleasing is to see small business get special attention from this discussion paper. For too long the economic rationalists and academics have wanted all businesses to be treated the same in tax and in economic policy. Finally someone has listened (probably to Bruce Billson and COSBOA).
Designing a system for all businesses will always mean big business gets its way and small business people have to struggle with extra complexity. So it is best to focus on each group separately. This is quite a change from previous reviews of tax and shows that, maybe, finally, the old fashioned economic rationalists have been sent on their way back to last century where they rightfully belong.
The focus on removing complexity is also commended – a less complex system is less expensive and encourages business and innovators.
The issue of GST has to be sorted. If we are going to have low or zero company and personal tax then a consumption tax that is supported by all and applied to all needs to be in place. The Howard government gave us GST after decades of debate now is the time to fix the faults and pave the way for use of technology to ease complexity and also give confidence that people and companies will pay their way. Again the government needs to be congratulated on the focus on this issue.
The debate on the GST will be difficult as we try to balance the need for simplicity with the needs of particular groups, especially those who cannot work or, if economic conditions are on a downward slope, who cannot find work. And as the recent Inter-generational report shows we will likely have less people working and more people on pensions creating a real imbalance in payment processes. Who will pay for the pensioners?
A fair international taxation system is desperately needed by all countries, developed, developing or under developed. This will require the international business community and various country associations to come together and agree on how companies should be taxed and where that tax should go. I doubt if Australia can lead the way on this issue but we should work hard on making changes happen.
In the end innovation will come from entrepreneurs and small business and that is where the future of the economy lies.