The year 2009 was the year of inquiry on the financial services industry in Australia. During the year, the Australian government officially ‘formed three separate inquiries into financial products and services, taxation and superannuation, commonly known as the Ripoll, Henry and Cooper reviews respectively’ (Papandrea 2009, p.01).
The Henry inquiry into taxation is the root and branch review into the taxation and transfer system. This essay focuses on this report. In order to comprehend the contents of the report, the following issues are addressed: the reasons for the Henry review into taxation, its recommendations and the government’s response.
Papandrea (2009, p.02), explains that issues concerning the challenges the Australian and state government taxes face like the interactions with transfer system due to factors like demographic, social, economic and environmental necessitated the formation of the inquiry in order to determine ways in which the government can position itself to deal with them in the future. The commission was also formed to enable the government to address some regulatory and modernization issues to ensure post-retirement products meet retirees needs.
Henry Report recommended that ‘the taxation system should raise revenue from four efficient tax bases, namely: personal income tax, business income, private consumption and economic rents’ (Thompson, 2010, p.01). Concerning company tax rate, the commission suggests that ‘the rate to be reduced to 25 per cent over the medium term and compulsory superannuation to be increased to 12 per cent’ (Thompson, 2010, p.02).
Thompson points out further that the report states that financial institutions operating in Australia should not be subject to interest withholding tax on interest paid to non-residents. This will position Australia as a regional financial centre.
The government’s response to the Henry Review has been to adopt a quite limited number of the recommendations. In regard to the company tax, the government proposes a reduction in the rate of company tax from 30% to 29% in 2013–2014 and a further reduction to 28% although small business will obtain the benefit of the new 28% from 2012-2013. The government also proposes a tax offset for exploration companies where the Australian exploration expenditure results in a tax loss (Thompson, 2010, p.03).
In conclusion, Henry report sets out the principles upon which future Australian tax reform should proceed. In that light, the report is a most significant contribution to the future economic planning of the nation.
References
Papandrea, V 2009, ‘Inquiries galore’, IFA cover story, 16 November, pp. 01-02. Web.
Thompson, WD 2010, ‘A long-term plan for Australian tax reform – the Henry Report and the government’s response’, Minter Ellison Lawyers: Keeping Good Companies, vol. 62, no. 5, pp. 01–04.