The Federal Government has put its cards on the table in regard to tax reform, and is moving slowly following the release of a very broad discussion paper.

Not wishing to bound into a new half-though policy or half-baked reform, the Government has been treading warily in the wake of its Tax Discussion Paper.

Ask almost any political persuasion in Australia if there is a problem with the current state of taxation, and the answer would almost universally be; “Yes!”

The Tax Discussion Paper lists just some of the problems, including; an over-reliance on income and company tax, a narrow-based GST which is not generating enough income, unchecked bracket creep, poorly targeted capital gains tax discounts, superannuation concessions, and the uneven taxation of savings.

In order to find which policies may score some points and which would feel a stinging rebuke, a broad range of options has been raised.

The Coalition has given hints on what it thinks the discussion and subsequent reforms should achieve.

On the Government’s wishlist is; lower personal income tax rates, a lower corporate tax rate and a higher GST rate.

On the GST, the Coalition appears to be pushing for the base to be broadened to include health, education and goods sold online.

But despite the careful treading, there are already some barriers. The biggest of these may by Prime Minister Tony Abbot’s well-publicised promises not to increase the GST.

Whenever the Coalition makes a move on tax, many wonder how it will benefit the higher-end of town, and resource companies in particular.

But since the abolition of the mining and carbon taxes, many say it is inconceivable that giant taxpayers and corporations will receive any tax relief as a result of the latest talks.

Industry expert Greg Travers, a tax director with William Buck, says the Government has played to one of its strongest suits; appearing to stand up for small business.

In an article for Fairfax Media, Mr Travers said there were many ways for the Coalition to support smaller businesses, including;

  • "Having a single tax authority (the Australian Taxation Office). Giving greater taxing authority to the states will add significant compliance costs for smaller businesses."
  • "Removing small taxes that are ineffective or where the issue can be dealt with appropriately through other taxes (income tax or GST in particular) would be beneficial. FBT is a good example of this. The cost for smaller businesses to comply with FBT is high. The majority of the benefits taxed under the FBT regime could be efficiently dealt with under the income tax regime, which is the approach that most other countries have taken."
  • "Target tax measures at genuine businesses rather than taxpayers with passive investments. It is the businesses that are driving economic benefits through increased employment and economic activity that need support. A challenge will be distinguishing between business activities and passive activities, particularly at the margins."

“Overall the government should be congratulated for the discussion paper initiative,” Travers wrote.

“It is clear that a lot of thought has gone into it. With political will and constructive input from the broader public, there is a real opportunity for genuine reform of the tax system.”