Fiscal Scenario in Australia
Three different examinations have already been instated by the Government this year. These studies are expected to bring significant changes to the financial structure of Australia after a very long time. The last financial revolution in the country is dated back to the Financial Services Reform Act in 2004.
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Different views are coming in from different sections of the financial industry. The PJC chairman has summarized the precedence for the investigational inquiry. Ripoll thinks that the financial services licensing sector needs immense attention to draw out some conclusive results. Although the industry stakeholders agree that some kinds of reforms are important, they fear that the reforms might just make the system complex and imposes more constraints.
Ripoll is confident; he says they’re planning to not only introduce reforms in the system, but to make it simpler and clearer. There are numerous issues prevailing in the industry that the PJC is concerned about. Some of these include understanding of PI and financial advice and tax deductions. Many people are hoping that these issues will be addressed in PJC’s report on November 23rd (Papandrea, n.d).
The Henry Review conducted under the Secretary of Treasury is also on its way. Superannuation guarantees and the superannuation preservation of age caught a lot of attention of stakeholders.
The Henry Report was released on 2nd May entitled “Australia’s Future Tax System”, includes 138 suggestions for long term reforms in tax and transfer system. At present, 125 taxes are obligatory by all levels of government in Australia. 90% of tax proceeds are attained from only 10 of these taxes. This has led to a conclusion in the taxation circles to bring in any reforms in taxation the best thing would be to increase these 10 taxes and eliminate all the 115 other taxes.
A number of recommendations have been given in the report. Let’s take an overview of the major highlights of the report;
Business taxation suggestions
An overall reduction in company tax rate to 25%, reduction of compliance cost for small businesses, enhancement of capital allowance allowed for write off of income producing assets, updating of taxation rules regarding trusts, revision of small business capital gains tax rules and increase lifetime limit of retirement exemption.
The report excludes consideration of GST but provides a few points which if implemented could be effective for the operation of GST.
Land & Natural Resources Taxes
The highest attention gaining reform suggested by Henry report is the introduction of Resource Rent Tax RRT. It proposes replacing all current resource charging arrangements at both feederal and state levels and impose a uniform RRT imposed and administered by the federal government (Thompson, 2010).
Government’s Response to Henry’s Report
The government has announced that it will adopt a limited number of recommendations and some suggestions have been pointed out as potential misinterpretations of the recommendations which the government says it will not implement at any stage. Overall NO CHANGES have been intended to be made.
The government has agreed to take up these changes immediately; company tax rate deduction from 30 to 29% in 2013-14 and 28% from onwards, tax off set for exploration companies where exploration expenditure results in tax loss. Offset will extend to geothermal exploration, improved downgrading for small businesses with an instant write off for assets worth $5000, increase in employer contribution from 9 to 12% by 2019-20.
A new resource SUPER PROFITS TAX RSPT for mining projects at 40% from 1st July 2012 will be deductible against the company income tax.
Some critics have raised fingers on the government considering only a few tax reforms suggested in the report.
Most of the stakeholders are expecting this year’s investigation of the Coopers Review to outline a major breakthrough in the superannuation systems. The first phase of the review gathered 100 entries from the business sector. Some have argued that the current system is effective and should not be amended. Some are of the view that trustee model should not be changed, but major areas for its improvement have already been identified.
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Other issues majorly addressed are the superannuation funds’ prudential requirements. A lot of debates have come up on this. Some groups think that the current liquidity and capital requirements are not enough. Preliminary results of the inquiry are expected to be shared soon. On the other hand, phase two of the inquiry has already begun.
Some people are of the view that to live in Australia equities should be overweighed in the emerging markets. In the recent years, maximum equity funds have been entering the market from Asia. Addressing the insecurities of the stakeholders, and the suggestions coming up from the reviews should be addressed with the highest priorities.
The Australian financial institutions seem to be undergoing a major change. Although all the suggested changes cannot be implemented it’s important that the stakeholders’ interests are safeguarded and that decisions are taken with full guidance to them.
Papandrea, V., n.d. Inquiries Galore. Inquiries and Reviews, IFA 483.
Thompson, W.D., 2010. A long-term plan for Australian tax reform-the Henry report and the government’s response. Professional Updates Taxation Law, 62(5), pp.305-08.