AUstralian Tax System: The Henry tax review: where have we come to?

http://www.thenewlawyer.com.au


By Andrew Clements and Kai-Chen Chang, Mallesons Stephen Jaques

The long awaited report of the Henry tax review (Report) and the Government's response to it was released last Sunday with much fanfare. Evocatively titled Australia's Future Tax System, preceded by media lockdowns and at the colossal size of over 1,309 pages, the Report and the Government's response to it promised much, not only for Australia's tax community, but all Australian individuals, families and businesses.

It seems an opportune time to reflect and consider: What will change? What will the Report mean for lawyers generally or tax lawyers in particular?

Based on the Government's response, the answer for many appears to be, in the short term, "not much". The Report does provide a clear indication of a Treasury "blueprint" for tax reform in the future.

Although the Report makes approximately 138 recommendations for reform, the Government's response appears to adopt only around 10 of the recommendations made in the Report.

The Government's response does not appear to be the "root and branch" approach that was advocated in the Report. The Government has adopted a number of the important recommendations from the Report, but has largely eschewed adopting some of the more controversial recommendations.

The Report's and the Government's response to it, necessarily operate on a high level, policy-based plane. Businesses and individuals are, at this stage, likely to be performing preliminary assessments of how the proposed changes are likely to impact on their affairs. But as always, the "devil" for tax reform lies in the detail.

It will take some time for the Government to determine how its response will be implemented and drafted. We would not expect Australian businesses and individuals to be immediately making significant changes to their operations and activities until further certainty and detail is available regarding the measures.

The Report does offer some useful guidance to Australian tax lawyers and practitioners regarding the direction for future tax reform, development and administration.

One of the areas of focus of the Report was the governance on the Australian tax system. The Report emphasises the need for greater community consultation prior to making significant tax reforms. It recommends an expansion of the existing roles of review and oversight bodies that are independent from the ATO in the Australian tax system, such as the Board of Taxation, Inspector-General of Taxation, the Australian National Audit Office and the Commonwealth Ombudsman. It also recommends a new body be established to advise the ATO on the general organisation and management of the ATO.

It is hoped that the Report's consideration and scrutiny of these issues will raise awareness of the importance of the governance aspects of the Australian tax system.

Perhaps the most valuable aspect of the Report is that it now essentially acts as a potential "shopping list" for future reforms over the coming years. It is hard to anticipate that any significant amendments to the overall policy design of the Australian tax system to be made without consulting or relying on the comprehensive recommendations made in the Report.

This raises questions regarding previous reviews of the Australian tax system that have been undertaken, to the extent they are inconsistent with the Henry recommendations. For example, the status of the recommendations made in the Johnson report, regarding Australia as a financial centre, is uncertain, as it is not clear whether the Government intends to pursue the Henry reforms in preference to the Johnson recommendations.