Thursday, December 11, 2008

The Henry Review: Your time starts now

Reactions due by May 1

* new consumption taxes

* volumetric alcohol taxes

* an end to duty free cigs and liquor

* "higher polluting" vehicle supertax.

* lower company tax rate

* taxing fringe benefits in the hands of workers

* axing stamp duty on property sales

* ending personal income tax returns

And superannuation tax concessions are on the table as well!

Vowing to come up with a system that will be right "for not just months or years but for decades," the Henry Tax Review has proposed new consumption taxes, cuts in the company tax rate, taxing fringe benefits in the hands of workers, axing stamp duty on property sales and ending personal income tax returns.

While stressing that none of the suggestions were yet recommendations, the head of the review,Treasury boss Ken Henry said the ideas, included in a 290-page consultation paper, would help focus discussion ahead of five months of consultations.

He said the Asprey Tax Review which reported in 1975, did not have its most important recommendations implemented until 1985 and, in the case of the Goods and Services Tax, 2000.

"We would like to think that our report could be as ambitious, and provide a guide for a long period of time," the Treasury Secretary said.

Treasurer Wayne Swan backed his departmental head saying he wanted to act on the recommendations over time rather than in one "big bang"...

"I don't think it could ever be one big reform because it is far too complex. What we need is a road map for the future and that’s why we appointed the Review."

Dr Henry said while Australia's company tax rate was not high by international standards and had not increased, a lower rate could boost national income by attracting increasingly mobile international capital.

The review builds a case for additional consumption taxes notwithstanding the term of reference that prevents it recommending an increase in the rate or coverage of the GST. Among the measures proposed are "volumetric" alcohol taxes that would end the low-tax status enjoyed by wine relative to beer, and an end to the "duty-free" arrangements at airports for alcohol and tobacco that is imported or bought at the the airport.

The review also raises the possibility of replacing the present "luxury car tax" with a "higher polluting" car tax.

Superannuation tax concessions are also up for reexamination, although the review is prevented from examining the tax-free super arrangements for people over 60.

Stamp duty on real estate transactions is frowned on with the review saying it can discourage relocations and encourage over-investment. Negative gearing is also up for discussion, although the Treasury Secretary said he "still wares the scars" of the last attempt to quarantine it in the 1980s when he advised the then Treasurer Paul Keating in the mid-1980s. The measure was reversed after an increase in rents.

"Without hopefully extending myself too far, I didn't consider at the time that it was pushing up rents but politics being what it is, that quarantining of negative gearing didn't last very long," Dr Henry said.

The Treasury head effectively ruled out extending capital gains tax to the family home saying that discussing the idea in the paper did "not indicate any disposition" on the part of the review to do so.

The review suggests taxing fringe benefits in the hands of workers rather than their employers "as happens in most other countries" and narrowing the scope of income tax deductions which amount to around 5.5 per cent of declared income, which is "broad by international standards".

It has adopted a clear goal of moving to end the requirement to complete income tax forms. "There are a series of moves we could take int hat direction. It depends on technology and the preparedness of taxpayers to have final withholding taxes applied, but the further the better," Dr Henry said.

The Henry Review will convene a series of community meetings in March and then round-table consultations culminating in a two-day international tax conference in June. It will report by the end of December.