Former Australian Treasury Secretary calls for “Big Bang” Tax Reform

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Former Australian Treasury Secretary Ken Henry has called for a “big bang” approach to tax reform, arguing that the Australian taxation system is in “a parlous state.” 

Henry claimed that the Australian tax system could not produce sufficient income to sustain the activities of the government. Far less at any time in the future when speaking at a Tax Institute event.

He added that while recent discussions of superannuation concessions, multinational tax avoidance, and the Stage 3 tax cuts were meaningful, they needed to go further to address the issue.

Henry said that Australia needed a reform process that would examine trends and dangers in spending pressures at all levels of government, taking into account which may be cut down on and which level of government should be in charge of formulating policies and implementing programs.

The process should identify “the tax bases upon which increasing reliance can be placed and those that should be avoided to boost growth prospects, and with acceptable implications for distributional equity.”

“There is no point planting a seed in a desert when what is needed is continental scale reforestation,” noted Henry.

Henry urged an “inclusive, cooperative Commonwealth-State process” for reform, adding that it should examine the tax, transfer, and retirement income systems in concert and determine the allocation of taxing powers. 

He rejected the argument for incremental tax reform, instead favouring a “big bang” approach as was taken following the Hawke government’s 1985 tax summit and by the Howard government.

Henry acknowledged that tackling tax reform would be hard for any political leader and that today’s tax reformers do not have the political luxury available to the Howard government to craft a revenue-negative reform package. 

“To any political leader, tackling tax reform is going to present like a mountain range covered in ice,” Henry said.

He said the package needed on this occasion must be revenue positive.

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