Barkoczy, Stephen --- "Editorial" [1999] JlATax 1; (1999) 2(1) Journal of Australian Taxation 2

Editorial

Associate Professor Stephen Barkoczy

In the foreword to the first discussion paper issued by the Review of Business Taxation, the Chairman of the Review, John Ralph, noted:

The Australian tax system can be likened to the leaning tower of Pisa. Adding another storey will not reduce the chance of collapse. It would only make it more certain. Like the leaning tower, the business tax system needs a sound and stable foundation before we can start the task of rebuilding.

As the Review correctly notes, the problems with our current tax system is that it is not based on a coherent set of principles and has developed in an ad hoc manner. The Chairman states that to avoid perpetuating this situation "a sound foundation and a framework of coherent principles capable of adaptation to meet changing needs and policies" is required.

The need for a stable and sensible base from which to build our "New Tax System" cannot be denied. But what exactly will this base be? What effect will the report of the Senate Select Committee on a New Tax System have on the Government's tax reform proposals announced in August 1998? And what is to become of the Tax Law Improvement Project? The rewrite of our existing income tax laws is nowhere near complete. In particular, the bulk of the specialist liability rules intended for Chapter 3 of the Income Tax Assessment Act 1997 have not yet been released. It appears that the Tax Law Improvement Project will be subsumed into the tax reform process. Assuming this will be the case, an entirely new focus will need to be adopted as the project was originally only concerned with "small p" rather than "large P" policy matters.

The Review has proposed that the debate about the design and operation of the business tax system should focus on:

• optimising economic growth;
• ensuring equity; and
• facilitating simplicity.

Many principles underpin these objectives. Most people would agree that:

• tax considerations should not make Australia an unattractive location for inbound investment, nor drive domestic investment offshore;
• individuals in similar circumstances should be taxed similarly, while the burden of taxation should fall on those more able to pay; and
• tax laws need to be certain, uniform and consistent.

While it is obviously sensible to focus on developing a sound framework upon which to build our New Tax System, experience would suggest that it is not identifying the objectives which underpin a tax system that causes problems, but their implementation. In recent times the practice of taxation law has been plagued by complicated legislation which promulgates confusing court decisions and thereby leads to taxpayers requiring time-consuming and expensive advice to resolve what should often be basic issues. Idealists might hope that our New Tax System will overcome these problems. However, a cynic (or, perhaps, realist) might be more inclined to expect that our New Tax System will most probably have its own idiosyncratic complexities and shortcomings and that while we are laying new foundations, we might just be building another leaning tower.

January 1999