Australia's Future Tax System
In early 2008 the Government established the review of Australia’s Future Tax System (AFTS) to comprehensively review Federal and State taxes, with the final report to be provided to the Treasurer by the end of 2009. An initial discussion paper was released by Treasury in August 2008, setting out the framework of Australia’s tax and welfare systems. In areas relevant to AELA, the paper noted that Australia’s corporate tax rate of 30% is above the OECD average of 26.6%, whereas in 2001 when our rate went from 36% to 30% the OECD average was 32.5%. In relation to effective life depreciation, it suggests that corporate tax reductions in other OECD countries have been partly financed by less generous tax depreciation allowances, and that effective life depreciation coupled with the 2006 introduction of the 200% rate for the diminishing value method have resulted in a greater alignment of tax depreciation with economic depreciation.
AELA’s submission to the review suggested that Australia introduce GST zero-rating of financial services. The most undesirable feature of our present input taxation is the over-taxation of business consumption of financial services; without the entitlement to the input tax credit, the GST is no longer in fact a value added tax. Other countries have introduced zero-rating or equivalent mechanisms to rectify this distortion, and Australia’s GST regime needs to regain its international competitiveness.
We also suggested the abolition of luxury car tax. Even with this abolition, ‘luxury’ cars would remain subject to limits on depreciation and input tax credits, tax imposts not borne by any other goods. For these purposes a common threshold of $75000 should apply, indexed to the general Consumer Price Index.
Our submission proposed an alternative to the current Fringe Benefits Tax statutory formula, increasing the present four bands so as to remove the incentive for more car use. This would also provide consistency with the operating costs method, reduce compliance burdens, ameliorate greenhouse gas emissions and address tax expenditure concerns. A significant micro-reform move would be the further abolition of state taxes. The legislative framework covering remaining state taxes should be made uniform. We await the Review’s recommendations.
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