Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Hansard source

I too wish to speak on the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006. When the new tax system was introduced, the government said:

… a modern tax system is one of the keys to Australia’s future economic growth and dynamism.

According to the government:

The existing tax system is out of date, unfair, internationally uncompetitive, ineffective and unnecessarily complex.

The solution they gave was A New Tax System because, as they said at that time, ‘systemic problems require systemic solutions’. According to the explanatory memorandum for the bill we are considering today, the government are making ‘continuing efforts to reduce unnecessary complexity in the tax laws’. If this is the best they can do, they have got a long way to go.

This bill repeals 4,100 pages of inoperative tax laws. Of course, that is welcome, but it will not fix the underlying problems with the tax law: the complexity of the laws and the burden that creates for taxpayers of all sizes. In 1996 the tax law was 3,500 pages long; today, after more than 10 years of Peter Costello’s treasurership, it is 9,500 pages long. It has gone from 3,500 pages to 9,500 pages. As Gary Banks, the Chairman of the Productivity Commission, observed in 2003:

Were this rate of growth to continue unabated, I am informed that by the end of this century the paper version of the Tax Act would amount to 830 billion pages; it would take over 3 million years of continuous reading to assimilate and weigh the equivalent of around 20 aircraft carriers.

Repealing superfluous tax law is always welcome, but what has the government done? It has not, for example, streamlined annual income tax returns. It has not simplified all of the tax offsets, deductions and exemptions that make it difficult for people to work out their tax liability. On top of that, the Treasurer’s tally of 4,100 pages of repealed laws includes several inoperative sales tax acts—acts which have not been operative for six years, and acts which do not relate to income tax.

I note that the Taxation Institute of Australia is calling for a more comprehensive rewrite of tax laws. The BCA has made this point:

… regulation should be simple, clear, well explained and sensitively enforced.

If you want an example of regulation that is not any of those things, you do not have to look much further than the income tax system.

As I have said before, Labor sees tax reform, guided by the principles of competitiveness, efficiency and fairness, as an investment in the drivers of growth. By international standards, Australia’s income tax system is too complex. While other countries have been getting on with the task of simplifying their income tax systems, we have been adding to its complexity. According to the OECD’s personal income tax database, the comparative complexity of Australia’s tax system has been increasing relative to other countries.

While taxes have traditionally been seen as the primary mechanism for governments to raise revenue and deliver services, they are also increasingly viewed as an important factor in the conduct of the market. All this bill will do is repeal the inoperative provisions—that is, it is a fresh coat of paint when the tax system needs a major overhaul. Last year there were 15,000 separate tax rulings and determinations. That is around 290 a week—58 each business day or one every 7.3 minutes. This means that 15,000 times a year taxpayers and their agents find the tax laws so unclear that they need a ruling from the tax office about how the law applies to their circumstances.

To me, this is as clear an indication as you could get that our tax law is far too complex and requires serious reform. The new tax commissioner said earlier this year that the complexity of the tax legislation does not trouble the average taxpayer. I was certainly surprised to hear that. He said that the average taxpayer does not care whether you have 10 pages or 10,000 pages of tax law. He said that a typical taxpayer earns income and has some deductions and that’s it. A typical business has business income, trading stock and operating expenses and that’s it. He also said that 78 per cent of taxpayers use a tax agent so they do not face the complexity themselves.

That is very disappointing. It is a narrow view of the costs of the regulatory burden. Why do ordinary taxpayers have to fork out more than $150 to have a tax agent fill out their tax return—the tax commissioner certainly has not answered that question—and why can’t it be simpler for more taxpayers? The 15,000 tax rulings last year tell us that, for businesses of all sizes, there are too many sections of the tax law that are impossible to interpret. Tax lawyers may have to consult half a dozen pieces of tax legislation to answer a straightforward tax question. That complexity means that corporate taxpayers are spending tens of thousands of dollars on advice or ATO rulings.

This kind of complexity is an impediment to doing business. For example, businesses are often stalled from making acquisitions, disposals or forming a consolidated group while they wait for legal advice or an answer from the tax office. Tax complexity can harm the efficient allocation of resources and, in the long run, that puts growth at risk, which is why we do need some substantial action in this area and that is not, unfortunately, contained in this bill.

The government have begun the process of reducing the burden of regulation, but there is little evidence that they understand why it is important. Earlier this year the British government made a call for what was called sensible debate on risk in policy making. It is little wonder that its call on regulation and risk has struck a chord around the world. The British government pointed to the detrimental effect of overregulation, its impact on business and the competitive culture of nations. Looking at regulation through the prism of risk is a worthwhile, new way to frame the debate on regulatory reform. The British PM put it in these terms:

… we are in danger of having a wholly disproportionate attitude to the risks we should expect to run as a normal part of life. This is putting pressure on policy-making … to act to eliminate risk in a way that is out of all proportion to the potential damage. The result is—

lots—

… of rules, guidelines, responses to ‘scandals’ of one nature or another that ends up having utterly perverse consequences.

Labor believe in smarter regulation. We believe in regulating where it is necessary. So easing the regulatory burden is an essential component of Labor’s agenda. Real change on this front requires structural reform. Part of the key to reform lies in fixing up the regulation impact statement process to ensure that regulation which fails the cost-benefit test does not get up. The government has not been up to the mark in this area at all. On top of that, we need to review industry by industry and, where appropriate, wind back the existing regulatory burden by (1) specifying the objective of each regulation and quantifying its benefit to business and consumers; (2) quantifying the cost of the regulation on the prices that firms charge and its impact on their capacity to remain innovative and competitive; and, (3) removing or redesigning regulation that is expensive but offers little benefit to either the consumer or the markets.

Percentage targets or rules such as the ‘one in, one out’ approach are useful if they do provide discipline and we set our sights high. We should also explore greater use of sunset clauses to ensure the regulatory burden is regularly assessed on a ‘use it or lose it’ basis.  But the ultimate test is high standards at a lower cost to business, and that must be our objective. Yesterday the Treasurer announced the government’s response to the Banks report Rethinking regulation. I think it is pretty fair to say that the Treasurer’s announcement showed a lack of passion for this important policy area. I look forward to the government embracing a new approach to regulation but, unfortunately, it was not on display yesterday at the Treasurer’s press conference.

The red tape burden on business has significantly increased under the Howard government and an attempt to reverse that trend is welcome. In particular, we welcome a five-yearly review of regulation to continually review and remove unnecessary regulations. The Banks task force report Rethinking regulation was a comprehensive review of business regulation, but the government’s response must be a wholesale change of the culture regarding regulation. Before the government announced its response to the Banks report, Labor had already made the following proposals: (1) impose limits on regulation, such as introducing a rule that a regulation must be abolished before any new regulation can be introduced; (2) explore new, flexible, low-cost regulatory models being adopted by our competitors, such as the United Kingdom; and, (3)  reform regulatory impact statements to ensure that the economic costs of red tape do not outweigh its benefits.

Labor has long been arguing for a new wave of productivity-enhancing reform to lock in prosperity for tomorrow, not just today. Despite the government’s response to the regulation task force report, there is a level of complacency in government policy settings that does not respond to the urgency of the challenges we face. Nowhere is this more evident than in the area of competition policy and regulatory reform. Quite simply, in these areas the government has hit the snooze button. Competition policy and regulatory reform have barely moved forward since the mid-1990s. Australia was only one of three OECD countries to see productivity growth accelerate in the 1990s, with productivity growth reaching three per cent a year—its highest growth rate for 40 years. In 2004-05, productivity fell by 1.3 per cent—the first fall since 1986-87, the largest since 1982-83 and only the sixth fall in over 40 years. In the 1990s, Australian productivity was moving rapidly towards US levels. We are now almost back to where we started.

The most tangible evidence of our deteriorating competitiveness lies in our trade performance. Despite record commodity prices, our trade and current account deficits remain near record highs. The BCA recently warned that the performance of the Australian economy is slipping and we are heading for trouble. In the face of this ever-intensifying global competition, Australia needs to be more productive, not less. And to do so, Australia needs a new wave of competition policy to lift the economy up and sustain our living standards into the future. Federal Labor is developing a new competition policy agenda not just for the first term of the next Labor government but for the next 20 years. Dealing with the regulatory burden and improving our tax laws are among the key challenges—challenges that this government simply does not get.

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