The Government should no longer delay its response to the Henry Tax Review, with tax experts calling for its release before the May Budget so that it can be properly scrutinised by industry groups.
They also say a response should contain a cut to the corporate tax rate, and that any longer delay in releasing the report could be harmful to businesses which are already delaying decisions until the review is released.
The Government commissioned the Henry Review nearly two years ago, saying it would be the most comprehensive review of the tax system in Australia’s history. It was given to the Government by treasury secretary Ken Henry in December, but treasurer Wayne Swan said at the time there was no timetable for its release.
However, several days ago Swan said the review would be released on or before the Budget night. But tax experts say it should be released sooner rather than later, with uncertainty growing regarding the Government’s response.
“There is a sense of urgency by some in the community to get this report out,” Institute of Chartered Accountants tax counsel Yasser El-Ansary says. “We do have to be careful that the report is released at a time when the Government has had the full opportunity to provide a full response. Of course, we don’t want to see it rushed out… but it’s important to get the timing right.”
El-Ansary says the Government’s response must be released before the budget, and that the importance of the review should stand alone and not be clouded by the media attention surrounding the budget.
“We would like to see the Review, and the response, given out in advance of the budget so that it can be scrutinised.”
Paul Drum from CPA Australia says there should be a timetable of when measures might be implemented.
“The sooner the better, because our concern is that, at least anecdotally, there has been some feedback that businesses might be starting to defer business decisions because of the uncertainty of the implications of what may or may not be coming.”
“We have heard that in the larger mining end of town, not in SME markets, there has been some conjecture about rent resources taxes and so on.”
Greg Hayes of Hayes Knight says the longer the review is delayed the more questions will be raised about its viability.
“I think the sooner it is reviewed and that review is released the better. All the stakeholders and interested parties in this review should have time to consider and review it all, and that can’t be done on fairly short notice.”
Rami Brass, RMS Bird Cameron’s tax services director, says the delay in releasing the report indicates the Government is concerned about political risk-taking, and that the longer it waits the worse the response will be from the business community.
“The delay in releasing the Henry Review points to the Government’s concern about the political risk of unveiling the recommendations in this Review. It also magnifies the impact for business with potentially inadequate time to evaluate the proposed changes and respond with alternatives and/or opposition to Henry’s recommendations.”
But with the Review set to be released shortly, these industry experts say a cut in the corporate tax rate should be expected, along with a number of methods to simplify tax for individuals and businesses.
“We would like to see a reduction in the corporate income tax rate in the future,” El-Ansary says. “We understand that can’t be done in the short-term, but certainly in the next few years we would like to see it down to at least 25%. That’s probably the major issue from a business perspective.”
“For individuals, what I’d really like to see looking forward is making tax compliance easier for small businesses and individuals, and I think an optional tax return system for taxpayers is a tremendous leap forward in simplification.”
Drum identifies a cut to 28% instead of 25%, and says the highest marginal tax rate should be reduced as well.
“We would like to see the corporate tax rate move to 28%, as well as the highest marginal tax rate move from 45% to 40%. We have also made other suggestions including changing how income from capital is taxed, rent, dividends and interest, etc.”
Hayes says there should be changes to SME tax law, specifically clarifications for companies operating under a trust structure.
“There are certainly some uncertainties for interpretations for people operating in trusts, for businesses under the $300 million mark. We don’t have a simple structure for those SMEs yet, and I think simplification for that group and cutting through structural issues will be good.”
Brass says there are actually some recommendations said to be in the report that could be damaging to businesses.
“What is of real concern, however, are recommendations that haven’t been discussed in detail, some suggest that one of these recommendations is to no longer allow negative gearing deductions to be offset against salary and wage income. This would have a significant impact on the rental property market with huge political and economic ramifications, something the Rudd Government is unlikely to welcome.”
“Another recommendation includes the removal of the dividend imputation credits, whereby shareholders would not be allowed to claim franking credits and offset these against tax on other income.”
Brass says this would be seen as a step backwards to pre-1987 corporate tax law, and that this effectively taxes corporate profits twice. “Its removal was a great leap forward in delivering rational and meaningful tax reform.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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