On 3 August 2020, the Tax and Transfer Policy Institute (TTPI) at the Australian National University (ANU) hosted the by-invite-only 2020 COVID-19 National Tax Summit. (We gratefully acknowledge the logistical support provided by PwC in hosting this virtual event).

The virtual summit brought together a range of representatives from academia, business, non-government organisations, the trade union movement and youth organisations, as well as those directly involved in Australian tax reform efforts in recent decades.

The discussions, held over half a day, comprised four substantive sessions:

• A keynote address by Thomas Barthold, Chief of Staff to the US Congress Joint Committee on Taxation, reflecting on lessons learned in the course of recent major tax system reform processes in the US;

• A session drawing together alternative perspectives on the problems within the Australian tax and transfer system from the lens of economists, young people, social services, workers and tax practitioners;

• A session focussed on the problems and options around corporate taxation in Australia; and

• A session discussing tax reform in the context of Australia’s federalised structure.

The audio recordings, final program and speakers list are available here. The video recording is available in the ‘downloads’ tab above. The following is a brief summary of some of the points raised during the summit.

Key points of discussion A consistent theme throughout the sessions was that there is a clear need for tax reform in Australia. There was also a general acknowledgement among participants that there are many problems in the tax system which need to be solved. They include: the over-reliance on personal income taxes for revenue-raising; unsustainable corporate tax settings; ineffective Goods and Services Tax (GST) that has not become the ‘growth tax’ it was envisaged to be; underutilised state taxes; a large number of nuisance taxes; ineffective design of resource taxes; lack of congestion taxes; large and inequitable tax expenditures; and a complex Commonwealth tax structure overlaid onto a complex federal fiscal structure.

In all, the Australian tax system is plagued by distortions, tax expenditures and inequities that mean that someone’s date of birth (or marital status) is almost as important to the tax that they pay as their actual capacity to pay tax. In addition to these concerns about fairness, there are also growing questions about whether the tax system will be able to continue to reliably fund the services that Australians expect.

Against this backdrop, tax reform is a critical dimension of public sector efforts to manage the ongoing process of crisis response, recovery and reform to COVID-19, as well as the significant increase in public debt levels that has already been required as governments have responded to Covid-19.

There are too many problems, though, in the tax system to be able to solve in any one reform push. Further, while COVID-19 raises the sense of urgency around the need for major tax reform, it’s not guaranteed that COVID-19 will, on its own, prompt the changes that are needed.

To be successful, Australian tax reform efforts will need bravery and a prolonged commitment from political leaders, that ensures that we don’t lose sight of the necessity of tax reform as we deal with the many other pressing issues that governments face.

In his keynote address, Dr. Barthold highlighted the common foundations of any significant tax reform endeavour:

• national reform requires national leadership;
• a consensus must be generated around a clearly articulated goal;
• the ultimate policy design will be defined by the trade-offs between growth and economic efficiency, simplicity, and equity (and by who is perceived to bear the incidence of the tax changes); and
• fiscal constraints will always limit the reform options that can viably be pursued.

Several discussants pointed out the pressing need for clear communication to generate sustainable policy change. This is particularly pertinent given that tax reform efforts in recent decades have been held back by a lack of public understanding around the role of tax changes, and a generally low level of economic and tax literacy among the Australian public.

Other key themes raised during the day were:

• Revenue adequacy is a critical dimension of the tax problem and will need to occupy a central place in future tax reform discussions. The public policy conversation will necessarily have to address how best to reduce Australia’s heavy reliance on the direct taxation of incomes (both corporate and personal) to raise Commonwealth revenue.

• The Australian tax system is plagued by opportunities for tax minimisation which have led to some individuals paying much more tax than others at the same level of wealth or income. Restoring a sense that people in similar circumstances pay similar amounts of tax, known as ‘horizontal equity’, will also need to occupy a central place in future Australian tax reform discussions.

• There is an important generational dimension to tax reform. In particular, there is a question about whether the Australian tax system can continue to afford to designate some (disproportionately older) lower-income Australians as the ‘worthy poor’ that are ‘deserving’ of tax-advantaged status, while designating other (disproportionately younger) lower-income Australians as ‘unworthy’ or ‘undeserving’ of such treatment. This is exacerbated by the tax-free treatment of housing and superannuation which has the perverse consequence that many of the `worthy poor’ are actually quite wealthy.

• There is a strong argument around taxing all investment income on a more consistent and a more neutral basis.

• There was widespread support for the broad-based taxation of land as an efficient source of revenue which could replace less efficient taxes or augment government tax receipts.

• There is an important place in tax reform conversations to discuss corporate tax relief, given the range of issues created by Australia’s current corporate income tax settings. The sequencing of such reforms needs to be carefully considered. For example, a pragmatic political reality is that corporate tax cuts are questionable in the absence of effectively dealing with the taxation of natural resources.

• Tax reform is also inextricably linked with reforms to the Australian Federation so that it is ‘fit for purpose’ and sustainable.