Taxation Reforms in Australia - Case Study Example

TAXATION REFORMS IN AUSTRALIA Name of Student Institution Course Number Instructor Date Taxation Reforms in Australia The process of taxation is one of the most crucial activities conducted by the central government through the involvement of the households and firms (Ricardo, 2014). The desire of states is the creation of a sustainable tax system that will allow the existence of a mutual relationship between the government and the private sector (Melville, 2014). Change is an essential factor that cannot be avoided. In taxation, experts have been faced with the challenge of setting up a system that is sustainable and can adapt to the emerging financial requirements. Tax reforms in Australia are phenomena that have lasted for decades, but no lasting solution has been attained. The external factors such as the economic integration, life expectancy, and international e-commerce have affected the process of making tax decisions. The process of making tax reforms is based on succinct analysis of the current and future expectations in line with the capacity of the inputs of the household and firms. Such an approach is what has proved a complex strategy in Australia is owing to the historical battle of the choice of the tax regime to be implemented (Bajada, 2002). This excerpt examines the taxation systems of Australia by outlining the effects and contributions of the winners and losers of the process of tax changes. The global classification of the tax reforms can be grouped into three broad categories based on the nature of implementation process. A revenue improvement may be classified as Revenue Neutral, Decreasing Revenue, or Increasing Revenue (Coleman, 2015). In Australia, taxation reforms have been associated with the principle of neutral revenue. The tax declaration of John Howard, the Prime Minister in 1997 of his five baselines of the tax changes, depicted his desire for stable tax burden that is not subjected to constant increase (Australian Treasury, 1998). The Australian neutrality regime was favored because of the need for the preservation of the equality and the status quo. Such an approach was deemed to be acceptable for the stakeholders and the government. The system provided a safe platform for the surety of the government expenditure sources. It was necessary for the country to stabilize the infrastructural development through the revenue collected and the need for a regular and anticipated income was an essential factor for excellence (Oshima, 2010). It was necessary for Australia to focus on the effect of changes to the existing tax regime through a comparative approach (Evans, 2000; Bucovetsky & Haufler, 2007). The administration could only achieve this through a revenue neutral scheme that could assist in analyzing the possible increase and decrease of the costs and benefits of taxation (Martinez-Vazquez & McNab, 2000). Although the Australian government has made tremendous changes in the tax regime, the challenge of a system that does not adapt to the global economic change is still lingering within the reforms. The key objective of the need for a methodology that is flexible and sustainable has been a complicated feature to be incorporated in the changes. The influence of the domestic and global economic reforms and shifts has contributed to the complexity of achieving this objective. The effect of the external forces on the tax economy is important to be included in the strategic approaches of the reforms because they determine the financial performance of the Australian government in the international platforms (Jones & Rhoades, 2014). The neutrality principle has made the taxation process to be intricate and inefficient. The implementation has been noted to be associated with inequality based on the nature of decision regarding tax administration. The system has been characterized by additional costs with the compliance revenue accounting for about 2% of the gross domestic product. The over-reliance on the tax agents has also contributed to the shortcomings witnessed with the system. Australia has the highest percentage of the number of taxpayers using the tax agents in the state in the Organization for Economic Co-operation and Development. The administrative costs amount to 3.5% of the collected revenue and exclude the expenditure incurred during the process of policy formation (Tran-Nam, 2004). Moreover, the loopholes that encourage the existence of inequality in the taxation process dominate the current system. The approach used in Australia allows the creation of wealth through speculative motives and borrowing. The system encourages the generation of possession through accessing loan facilities since the tax policies are lenient to borrowers. However, those who work and attempt to save are highly penalized through taxation. The rates of the salary and wages are higher than the revenue charged on borrowed income. In fact, the savings through deposits from tax for the working class is also highly taxed as compared to revenue accrued from investments such as property, assets, and shares. Whenever individuals decide to make investments from debts, then they are not subjected to high tax rates irrespective of the magnitude of returns that is generated from the speculations. It is essential to note that the Australian tax system is associated with varying rates of the progressive tax on savings to a negative value whenever the taxpayers leverage level on assets and superannuation savings are high. The tax amounts are exaggerated to about 80% on deposits from the banks and building societies in the country (Tran-Nam et al., 2006). For example, the Howard Government lowered the tax burden on wages and salaries in their last five annual budgets. The changes did not incorporate the low-income earners since it did not factor the effect of the tax interactions on transfers that subjected the group to a rate as high as 60%. Nevertheless, the introduction of the GST changes and personal tax adjustments has contributed to the degradation of the process of reforms. The overdependence on the corporate taxes and underestimating the advantages emanating from the consumption and personal taxes are some of the challenges that have affected the strategic approach to a sustainable tax regime in Australia (Warren & Harding, 2005). The number of taxes imposed on commodities, firms, and individuals has no precise definition since some lead duplication. There is the need for the abolishment of some of the imposed revenues through a comprehensive methodology. Any changes on the taxes reforms will not be achieved since the process will have the inclination to political problems as well as the stakeholders’ influence. The key players in the tax changes have contradicted regarding the approach to be enacted, the rates to be applied, and time tax implementation. The high costs of administering and collecting the taxes have affected the viability of the financial capacity of the Australian government (Turnbull & Temple, 2005). Still, the process is subject to changes replicating the international standards and requirements. The recommended reviews on the corporate tax have not been fully included in the current taxation regime due selective approaches used by the government to effect changes. Although the currently the government appears to be winning and the private entities such as the firms and household seem to be losing, the long-term consequences might cripple the government’s financial capabilities. The state has faced the challenge of the tax growth, yet the needs such as social amenities and public infrastructural development keep growing every year. It is essential for the reforms to be strategized to reflect the international standards and competence to bail the country from financial crises. There is the need to strengthen the transfer systems and the sophistication of the level to global conformity. Such mechanisms will assist the adopted system to be flexible to internal and global economic changes (Saunders, 2003; Dabner, 2012). The political influence should not alter the process of change; rather it should be based on the need for sustainable and equitable tax regime that is comprehensive in nature. The approach to be used should be simple for the understanding of each affected by the scheme. Moreover, the concerns of the public should be incorporated in the decision process since they are the key players of the taxation process. Through structural thinking and planning, a technique that will give the government a baseline for secured income free from political manipulation will be created. It is also necessary for competence and professionalism to be engaged in the process of setting up measures meant for a taxation reforms to eliminate the factor of limited ownership and agenda setting and control by the selected influential individuals (Business Council of Australia, 2005). In conclusion, taxation reforms in Australia have lasted for decades, but no lasting solution has been attained. The external factors such as the economic integration, life expectancy, and international e-commerce have affected the process of making tax decisions. The Australian neutrality regime was favored because of the need for the preservation of the equality and the status quo. However, the loopholes that encourage the existence of inequality in the taxation process dominate the current system because approach used in Australia allows the creation of wealth through speculative motives and borrowing. Some of the challenges that have affected the strategic approach to a sustainable tax regime in Australia include the overdependence on the corporate taxes and underestimating the advantages emanating from the consumption and personal taxes. Therefore, there is need to strengthen the transfer systems and the sophistication of the standard to universal conformity. Through structural thinking and planning, a technique that will give the government a baseline for secured income free from political manipulation will be created. Bibliography Australian Treasury, 1998.Tax Reform: Not a New Tax A New Tax System, AGPS, Canberra. Available online at http://www.treasury.gov.au/contentitem.asp?NavId=022&ContentID=167 Bajada, C., 2002. Australia’s Cash Economy: A Troubling Issue for Policymakers,Ashgate, Aldershot. Bucovetsky, S. and Haufler, A., 2007. “Preferntial tax regimes with asymmetric countries,” National Tax Journal, 60(4): 789 – 795. 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