by Weber Shandwick
 

It’s very difficult to write about the federal government’s latest white paper without invoking a cliché.

So I won’t even try; I’ll simply make the point that there are two certainties in modern political life: leadership battles and tax reviews.

Unlike the previous Labor government’s Henry Review, this tax paper didn’t have any ‘no-go’ zones. Sacred cows such as negative gearing, superannuation concessions and capital gains tax exemptions were all on the agenda.

The result is a comprehensive and wide-ranging analysis of the nation’s taxation systems. Entitled ‘Re:think’, the paper makes interesting points, prods at some of the above-mentioned cows, and raises a lot of open-ended questions.

In the same vein as the intergenerational report, the paper raises concerns about the current landscape.

For example, it explains that over the past 50 years, the economic environment has changed dramatically: in the 1950s, the country was built on wool cheques, high tariffs and a closed financial system.

Today, financial deregulation, multinational companies and digital commerce have transformed the economy.

And yet our tax system looks about as modern as a Mad Men episode.For example, Australia relies more heavily on income taxes than every other developed country, except Denmark.

However, the brackets that apply to personal tax, for example aren’t indexed to inflation or wage growth. So one year, you could be earning $79K per annum and fall into the middle tax bracket, but a few years later, your wage has risen in line with inflation, but the tax brackets have stayed the same.

So now, your income has crept into the higher tax bracket ($80+) – which is why it’s called bracket creep. It’s one of the reasons you can get a pay rise every year and never feel richer!

This bracket creep is expected to increase in coming years and could have a negative impact on Australians’ real incomes. So it’s one of the issues that the white paper addresses.

The paper explores many issues such as this one, providing a range of viewpoints and then asking broad questions such as ‘how important is it to reform taxes to boost economic growth?’ and ‘what should our individuals’ income tax system look like and why?’. All very important and valid questions – with no easy answers.

So what does all this mean? Will we see negative gearing swept aside in the next budget?

It’s unlikely. The Henry Tax Review was a well-argued, intelligent and considered piece of policy advice. It is now sitting in a drawer somewhere, and I can only imagine that Ken Henry sometimes pulls it out, looks at it wistfully and raises a sad, commemorative cognac to it.

The new tax white paper will provide a rationale for changes that the government is probably already considering, such as reforms to superannuation concessions.

It may also result in some new and exciting ideas, but the problem with tax is this: whatever you change, someone wins and someone loses.

That’s why tax reform is so terrifying to governments, and why the GST was one of the most contentious reforms of the last few decades.

Here’s hoping that the new white paper leads to a sensible and informed conversation. And that one day, I don’t need to pay my tax accountant so much money.

By Belinda White, Senior Account Director, Corporate & Public Affairs bwhite@webershandwick.com / @bowhite

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