(upbeat new age music)
-: Have you ever considered why we have taxation
on income or capital?
Or why we have taxes on consumption or production?
What about why some entities are required to pay tax,
while others are tax exempt?
Taking a step back, why does the government
take on some responsibilities,
but leaves others to the market or private enterprise?
These are all examples of tax policy.
Tax policy is a broad term
that captures how the overall tax system should operate
and reflects a range of economic,
social and political ideals
that shape and shift over time.
Tax policy is influenced by a multitude
of constantly changing environmental variables
including administrative, institutional,
and political factors.
These changing variables require trade-offs to be made
such as between balancing efficiency and growth
with distributional outcomes.
It also requires acceptance that there may never be
an optimal system or solution,
even though incremental and sometimes wide scale
improvements can be made to the tax system.
So what is tax policy trying to achieve?
That can be hard to answer in a succinct way,
as there are a range of factors to consider.
For example, creating a fair and equitable environment
where adequate revenues are raised from a sufficiently
wide tax base.
Forming an efficient and transparent system
that promotes productivity and growth,
and enabling a transfer system that protects
certain taxpayers while not demotivating
or penalising others.
But tax policy that exists, or works for the current period
is unlikely to be relevant for the future.
Movements towards the provision of more
government services, such as welfare and community
infrastructure and the opening up of economies,
such as through free trade and internet commerce,
can greatly change the tax policy outlook.
More broadly, developments in social, political,
environmental, demographic, economic,
legal and technological domains contribute
to the need for tax reviews.
Consider the policy implications for domestic
consumption taxes with the spike in online sales
and the importing of low value goods from overseas.
Charging GST on such low value imports, levels
the playing field for domestic producers
and increases the tax revenue base.
But it also significantly increases administration
and compliance costs.
Other examples include putting a price on carbon,
whether through a carbon tax or emissions trading scheme
to deal with environmental concerns and climate change.
And enacting new legislation to respond to case law
outcomes, such as for the Banford case relating
to trust streaming.
So tax policy needs to be considering historical outcomes,
current trends and future expected trends,
and more and more the domestic tax system design
must be made within an international context.
Tax system reviews are therefore incredibly complex
and need to consider a comprehensive amount of information.
The reviews often refer to research, statistical modelling
and recommendations from a range of experts
and published reports.
However, tax policy changes rarely take place
at a fast pace.
There is typically a time lag between taxation reviews,
reform announcements and legislative change.
Plus, not all recommendations end up
being accepted or implemented.
Recommended changes can be costly to implement
and difficult to sell to the electorate.
Further, governing political parties change over time,
which changes priorities as well as the underlying
economic, political and social ideals.
For example, Australian tax system reviews
in the 1970's led to significant developments
in tax policy, taking over a decade to eventually implement,
and only after further reviews had been
commissioned and published.
To recap, tax policy is a broad term that captures
how the overall tax system should operate and reflects
a range of ideals that shape and shift over time.
Because of this, tax reviews are undertaken to identify
gaps and failings in the current system
and to prepare the tax system for the future.