In terms of fundamental tax reform, the Government’s White Paper on tax is likely to remain a series of mostly blank pages, according to Flinders taxation academic Associate Professor Paul Kenny.
Associate Professor Kenny of the Flinders Business School said that political rather than economic considerations dictate the willingness to address many of the basic flaws in the tax system, which include the continuing presence of “free riders”.
With the current level of national debt at a manageable level and steady, low interest rates, he predicted that the economic situation would have to worsen considerably before there would be sufficient political incentive to undertake substantial reforms.
“I can’t see there being any trigger for meaningful tax reform at least until 2020, and possibly not for 10 years,” Associate Professor Kenny said.
He said that with the major parties playing to their constituencies when in power, no progress was likely in addressing the “free riders” in the system.
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There are glaring structural examples of lost tax revenue, including the lack of a wealth transfer tax, the tax-free status of lottery winnings and the diversion of multinational profits offshore, Associate Professor Kenny said.
While they have been in recent focus because of the Senate review, multinationals such as Microsoft and Google have allegedly paid hardly any tax in Australia, and Associate Professor Kenny welcomed the first signs of government action to address the problem.
For far too long, blame has been leveled at the inadequacies of the international tax system , he said.
“Australia has sole jurisdiction for tax laws in this country. If the multinational companies divert their profits through Singapore to Ireland, we can target their activities with a proxy tax. The legislation might be complex, but it can be done,” Associate Professor Kenny said.
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Associate Professor Kenny said international influence was self-evident at the time of the proposal of mining tax.
“The major mining companies are essentially foreign owned, yet we saw massive resistance not only in the newspapers, but at a political level in Canberra,” he said.
“Is New York calling the shots on our tax policy?”
He said the previous Liberal government introduced “an army” of new free-riders, exempting those over 60 from superannuation tax and diluting the capital gains tax system.
“We now have the Liberals complaining about a lack of tax revenue, when the same people put the loopholes in system,” Associate Professor Kenny said.
“When people who earn $80,000 a year working long hours in a factory are being taxed at 40 cents in the dollar, it’s hard to see why a multi-million dollar inheritance or a two-million dollar lottery win should be tax free.
“A buck is a buck, and should be taxed as such. If we share the burden around, the result is a lower tax rate.”
Associate Professor Kenny said the inefficiencies and distortions in the system are well documented.
“But the government and the financial papers, instead of trying to fix this mess, are urging the easy option of broadening and increasing the rate of the GST,” he said.
He said the burden of a higher GST is likely to fall mainly on the residents of the outer suburbs, with consequences in particular for women and children.
“Yet all the exemptions remain in the system, seemingly for New York and for rich old men.”
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