Tax reform may not be totally fair – and that’s okay, say experts at The Tax Summit: Project Reform

SYDNEY, 24 November 2020: Opening The Tax Summit: Project Reform Virtual Summit this morning, Director, Tax Policy and Technical at The Tax Institute, Andrew Mills, CTA (Life) discussed the tenets of a good tax system with a panel of tax experts – including the role of fairness within the system and compensation for anyone who may ‘lose out’ in the process of reform.

Grant Wardell-Johnson, CTA, KPMG kicked off the conversation, saying, “I do think we have a ‘no loser’ mindset when we speak of reform and that’s a very dangerous position to be in.”

“I think we need to develop principles around where we compensate losses and where we don’t, actually, and we say yes, some people are going to lose but the system is going to be better off and you’re going to be potentially a long-term winner… which is underrated at present.”

Michelle de Niese from the Corporate Tax Association, agreed, lamenting that tax policy debates often “degenerate into the winners and losers discussion”.

“The reality is, no reform is going to result in every participant’s gain or loss being perfectly measured against another. There will be losers, for want of a better word, and that’s ok, provided they’re the ones with the capacity to absorb that loss,” Michelle said.

Michelle said the concept of fairness and the focus on a zero-sum game in Australia, could stymie good debate on tax reform.

“Fairness is obviously a subjective term, which necessarily leads you down the rabbit hole. But I think the one area it does have a place in the tax reform debate is perhaps having an agreed understanding of what the various concessions that are offered under our tax system are designed to achieve and what they have in fact delivered,” Michelle said.

Professor Robert Breunig from the Tax and Transfer Policy Institute, said he was in “furious agreement”.

“If somebody has benefitted from an incredibly generous tax treatment for thirty or forty years relative to the amount of wealth they have, to suddenly ask them to pay a tiny little bit of tax, hardly seems to be making them a ‘loser’,” Robert said.

The way to get past the ‘no losers’ mentality, he said, is to change the conversation and promote understanding that all Australians have a role to play in making the tax system work.

“We’re all in this together. We want to set up a tax system that we think we’re going to be happy to pass onto our children and to our grandchildren. Something that’s going to make Australia an exciting country for people to want to live in, an exciting country for businesses to want to set up in and something we can all be really proud of,” he said.

“If we do that in a way where we have a sense of collective purpose and we have transparency, and we can see that in fact everybody’s trying to help out in this, then I think you can try to change the dial a bit.”

And now may be a particularly good time to embark on that goal, according to Grant Wardell-Johnson, who said, “I think we’re moving into a positive era and I think COVID is helping to drive that. Now there’s no way you can embrace tax reform in the context of the October Budget. But I think next year you’re going to be positive on three fronts.”

In the next year, he said, we’re likely to have three major positive turns ­– a COVID-19 vaccine, progress on climate change, largely driven by the US Presidency and a psychological response to COVID-19, where people believe we are able to do things better.

“That, to me, is a positive setting for tax reform. To explain what we can do better,” he said.

This commentary was made at The Tax Summit: Project Reform Virtual Summit event on 24 November 2020. The Tax Summit: Project Reform is an ambitious endeavour to define the priorities of reform for our tax system and will form the basis of a Case for Change paper.

 

ENDS

 

For more information, please contact:

Kelly Emmerton – Media Contact, The Tax Institute

kellyemmerton@taxinstitute.com.au  

0410 108 681

 

The Tax Institute is the leading forum for the tax community in Australia. Our reach includes membership of 12,000 tax professionals from commerce and industry, academia, government and public practice and 40,000 Australian business leaders, government employees and students. We are committed to representing our members, shaping the future of the tax profession and continuous improvement of the tax system for the benefit of all, through the advancement of knowledge, member support and advocacy. Read more at taxinstitute.com.au