bO2 2022 – Ch 20 – Tax Reform

James Murphy

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In past issues of the  Annual Taxation Summary Manual, we’ve covered under “Tax Reform”.”

  • The Henry report (2010)
  • The International Report (2015)
  • The Tax White Paper (2016)

After these initiatives all fell by the wayside, it is fair to wonder if any fair tax reform would ever be achieved. We have to remain optimistic.


A draft report, sponsored by the NSW Treasurer, makes 15 recommendations for reforming federal financial relations and national economic recovery. This has been widely covered in the Fairfax Media and articles by the Big 4 Accounting Firm, KPMG.

The Federal Financial Relations Review (FFFR) panel has released its draft report “supporting the road to recovery” on options for reform of the financial relations between the federal, state and territory governments in Australia.

The NSW Treasurer, Dominic Perrottet, convened the panel in August 2019, aimed at kick-starting a debate on how greater efficiency and public benefit could be derived from the interaction of the revenue-raising and spending activities of the respective governments.

It is a major concern that GST revenues, which flow to the state and territory governments, has not kept pace with the growth in the economy over the last 20 years. That is, spending has become more skewed towards goods and services that are input-taxed or GST-free (for example, residential rent, loan interest, education, and health care).

Another pillar of sub-federal government revenue – stamp duty – is subject to significant fluctuation due to the cyclical rise and fall of the property market. Given Australia’s level of vertical fiscal imbalance (the funding the states and territories receive from the Federal Government to enable them to meet their spending needs to fund the services they are responsible for), these issues have caused concern for treasurers. In 2020 bushfires and Covid-19 have clearly made this worse.

The FFFR panel clearly prefers phasing out taxes that it sees as unfair or overly burdensome on the community (such as insurance and transfer duty), reforming and harmonising the payroll tax base, and making more use of the states’ principal revenue-raising asset, being land. It makes 15 recommendations, of which a number relate to the overall governance of financial relations between the levels of Government.

While meaningful change will not be possible in the middle of a crisis, now is the time for Federal and State leaders to consider the issues.


In making the below comments, we stress that at bO2, we strive to be apolitical while paying due respect to the Government of the day.

As we go to press, it is the 21st anniversary of the introduction of the GST, and it suggested that this is the last time any meaningful tax reform was achieved. Since that time, both sides of politics have failed when it comes to tax reform.

We have deliberately included material that covers the last 5 years. Our view is that failed opportunities lead to a groundswell that does cause our leaders to act finally.

Another great opportunity for tax reform looms large in the post-Covid-19 era. The general consensus appears to be that the Federal Government has done a reasonable job tackling the pandemic.

To some, this represents a real opportunity to engage in tax reform. When questioned, both the Federal Treasurer and Finance Minister gave answers to political commentators viewed as a lack of will to tackle the issue.

Our view is that the Federal Government is coping daily with the pandemic’s fiscal policy challenges, and this is entirely understandable. Post Covid-19, the Federal Government is likely to have $1 trillion in public debt.

Necessity will be the driver for tax reform, including the reform of the GST. The rate of GST could increase; the average rate of consumption taxes in OECD nations is 15%. In such an increase, vulnerable citizens will be compensated through Government benefits and changes in the tax-transfer system.

The Federal Government appointed former Treasury Head Ken Henry to chair “Australia’s Future Tax System Review”, informally known as the Henry Tax Review, published in 2010. Most of the recommendations were not implemented due to the political turbulence then existing. In July 2020, he told ABC’s Radio National, “we need economic reform like we’ve never seen before”.

He suggested four key areas of focus:

  • A simple business cashflow tax to replace the GST, payroll taxes and all state and territory taxes on consumption.
  • A progressive set of land taxes to replace state and territory stamp duties on property transfers.
  • A comprehensive road user charge to replace fuel excise, motor vehicle registration fees, motor vehicle stamp duties, and the luxury car tax.
  • Exempting from tax all scholarships, pensions, allowances, and other government transfer payments.


In July 2021, the Tax Institute released its 287-page report “The Case for Change”, which examines key areas of the tax system that are ripe for reform in a bid to kick-start a discussion over the best way to rework Australia’s tax and transfer system.

According to the level of the taxes, Australia relies on income taxes capturing some 60 per cent of its revenue, which also impedes economic growth. These include corporate tax, which is the fourth-most relied upon tax globally, and personal income taxes, which are the equal second-most relied upon tax globally.

The Tax Institute position is that Australia’s over-reliance on income tax is unsustainable as Australia’s population ages and an entire generation prepares to retire.

According to Andrew Mills, director of tax policy:

  • With a warranted focus on productivity and jobs, relying so heavily on taxing personal income makes no sense. Australia’s ageing population also means that a huge gap will be left in our tax revenue as an entire generation prepares to retire.
  • Unless we look at other revenue streams, there are not enough younger workers contributing income tax into the system to support the number of retirees in a sustainable way.
  • Significantly, over two-thirds of Australia’s tax receipts come through personal and corporate income taxes — which is twice the OECD average. For example, in the 2017–18 financial year, 51% of the tax collected in Australia was from personal income tax.
  • Relying so heavily on a small number of taxes, Australia increases its economic risk, with a large proportion of those taxes paid for by a small number of companies. This makes for a “concentration risk”.
  • Successive governments playing it politically safe has had a damaging effect on Australia’s ability to develop sound tax policy and law.
  • While that may seem easier in the short term, avoiding the real conversation of what tax reform needs to happen makes the necessary changes harder to sell, hurting all Australians.

The report, which advocates a repurpose of the goods and services tax (GST) to usher in meaningful Australian tax reform, underlines what BO2 has been saying for years. If more people understood the potential role the GST could play in spurring economic growth, Australia could be better placed to legislate workable reform.

As stated in the past, New Zealanders had no problem increasing the GST first to 12.5% and then to 15% in 2010. It’s just a shame that Australian politicians and the general public lack the maturity and resolve to deal with this vital issue.

In the coming years, this chapter will become more interesting.