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Why is tax reform so hard in Australia?
Tax Reform
We haven’t had any meaningful changes to our tax system since the introduction of GST in 2000. Why does tax reform seem to be so hard?
In this episode Chris Evans of UNSW looks at tax reform and why this seems to be an insurmountable task in Australia. Here is what we learned but please listen to this episode since Chris Evans explains all this much better than we ever could.
Listen while you drive, walk or work. Just use a podcast app on your mobile phone.
When we look at why tax reform is so hard in Australia, we need to first define what a successful tax reform actually looks like.
Measures
How do we measure the success of a tax reform?
# 1 Did the reform achieve what it intended to achieve?
Let’s take the introduction of GST as an example. Did the introduction of GST in 2000 achieve its intended objectives? One objective had been to change the tax mix in Australia. And the answer to this is probably yes. Yes, they did change the tax mix.
# 2 Is it sustainable?
Will the reform last? Is the reform just here today – gone tomorrow? Or will it prove its worth over a long period of time? Going back to our example of GST, it passes the test.
# 3 Does it have any undesirable side effects?
Did the reform lead to any unintended consequences? Going back to GST, it probably did have unintended consequences although a lot of those were anticipated.
Hurdles
Tax reform is hard everywhere not just in Australia. But Australia has got a few unique circumstances that makes it more difficult to implement tax reforms that other countries. Here are some additional hurdles we face.
# 1 Short Parliamentary Period
Our parliamentary period is only 3 years whereas other countries’ parliament stays put for 4 or some – for example the UK – 5 years. The length of our parliamentary period makes it hard to introduce tax reforms. There just isn’t enough time.
# 2 Obstructional Senate
Australia has two chambers of parliament – the House of Representatives and the Senate. And it seems to be difficult to get any form of tax reform through the Australian Senate.
New Zealand on the other hand proves to be successful in reforming its tax system. And – no surprise – New Zealand only has one chamber of parliament.
# 3 Federation
Australia is a federation of states with a strong divide between the states and the federal government.
# 4 Politics
Politics is difficult to remove from the tax system. Tax is politics.
Let’s take the example of “negative gearing”. Australia is one of the a very few countries that offer negative gearing. It would have been sensible to take a long hard look at our negative gearing rules but politically it clearly is a no go zone.
It is fairly naive and idealistic. And it is a little bit outrageous to suggest that tax should be removed from the political framework but perhaps the only way we are going to get good sensible tax reforms in the long term is to take politics out of tax.
This is a short recap of our interview with Chris Evans. The way we understood it. But please listen to the actual interview for more.
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Last Updated on 03 May 2020
Tax Talks spoke to Chris Evans - Professor at School of Taxation ＆ Business Law - UNSW - for more details.
