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  • 8/13/2019 ICAA Pre Budget Submission Release

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    MEDIA RELEASE

    ICAA: Savings alone wont save us in the long t ermSunday 2 February 2014

    The Institute of Chartered Accountants Australia has today urged the federal government to makeproductivity, nation building and meaningful tax reform the priorities in this years federal budget.

    Following the release of its pre-budget submission, Chief Executive Officer Lee White said thatwhile the May budget would inevitably feature a raft of savings measures, cuts based solely onshort-term financial gains could counter economic growth.

    The government is to be congratulated for taking the current budgetary challenge seriously, Mr

    White said.

    Their resolve to tackle it from the outset sends the right message to the community.

    But the most important task will be mapping out a plan to boost our national productivity, becausewhile savings measures will help us climb back into the black, they wont set us up for futureeconomic growth, Mr White said.

    Mr White said the government should also use this budget to start addressing the continueddecline in federal revenue, ahead of their proposed tax reform white paper, due before the nextfederal election.

    The ongoing erosion of the budget bottom line is a pressure point on our national purse stringsthat needs to be relieved, he said.

    This years federal budget is an opportune time to start a national conversation about the need fortax reform, including a full and frank conversation about whether we need to increase the base andrate of the GST.

    The last thing we want, is to find ourselves, in ten or twenty years time, unable to pay for basicgovernment services that we all currently take for granted, Mr White said.

    The Institutes 2014-15 pre-budget submission also focuses on additional recommendationsrelating to tax, superannuation and red tape reduction, including:

    provide a plan to lower the corporate tax rate over time; consider ways in which the community can be involved in reducing red tape; consider utilising external industry experts in the drafting of changes to tax legislation; determine the feasibility of mandatory Standard Business Reporting for listed entities; progress the ATOs proposal to introduce pre-filled income tax return for individuals with

    straightforward tax affairs; enable all Australians, regardless of work circumstances, to claim a tax deduction for

    personal superannuation contributions; review the level of superannuation contribution caps; and re-introduce the Low Income Superannuation Contributions scheme.

    A copy of the Institutes 2014-15 pre-budget submission is attached.

    ENDS

    http://www.charteredaccountants.com.au/http://www.charteredaccountants.com.au/https://www.charteredaccountants.com.au/secure/myCommunity/people/leewhitehttps://www.charteredaccountants.com.au/secure/myCommunity/people/leewhitehttps://www.charteredaccountants.com.au/secure/myCommunity/people/leewhitehttps://www.charteredaccountants.com.au/secure/myCommunity/people/leewhitehttp://www.charteredaccountants.com.au/
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    Media contact:

    Sally TindallInstitute of Chartered Accountants Australia0408 635 [email protected]

    Follow us on twitter.com/Chartered_Accts

    Notes to editors:

    Institute of Chartered Accountants Aust ralia

    The Institute represents accounting and business professionals in Australia and around the globe. Membersstrive to uphold financial integrity through a commitment to ethics and acting in the public interest.

    We focus on educating candidates through the Chartered Accountants Program and engage in advocacyand thought leadership underpinned by our members knowledge and experience. We influence a range ofpolicy areas impacting the Australian economy and domestic and international capital markets.

    A watershed member vote in 2013 set the course for the Institute to amalgamate with the New Zealand

    Institute of Chartered Accountants (subject to obtaining formal government approvals and effectingamendments to constituent documents), with the vision of becoming the trusted leaders in business andfinance.

    The proposed new institute Chartered Accountants Australia and New Zealand is expected to have morethan 90,000 members in total with 17,000-plus candidates, giving us greater scale and influence on the worldstage.

    We are on the Board of the International Federation of Accountants, and are connected globally through the800,000-strong GAA and Chartered Accountants Worldwide which brings together leading Institutes in

    Australia, England and Wales, Ireland, New Zealand, Scotland and South Africa to support and promote over320,000 Chartered Accountants in more than 180 countries.

    charteredaccountants.com.au

    mailto:[email protected]:[email protected]://www.twitter.com/Chartered_Acctshttp://www.twitter.com/Chartered_Acctshttp://www.twitter.com/Chartered_Acctshttp://www.charteredaccountants.com.au/http://www.charteredaccountants.com.au/http://www.charteredaccountants.com.au/http://www.twitter.com/Chartered_Acctsmailto:[email protected]
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    Institute of Chartered Accountants Australia

    2014-15 Pre-Budget Submission

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    31 January 2014

    Ms Luise MccullochGeneral Manager, Budget Policy DivisionDepartment of the TreasuryLangton CrescentParkes ACT 2600

    By email: [email protected]

    Dear Ms Mcculloch

    2014-15 Pre-Budget Submission

    The Institute of Chartered Accountants Australia (the Institute) welcomes theopportunity to respond to the invitation from the Hon Joe Hockey, Treasurer, forsubmissions on the 2014-15 federal budget.

    About the Institute

    The Institute represents accounting and business professionals in Australia and aroundthe globe. Members strive to uphold financial integrity through a commitment to ethics

    and acting in the public interest.We focus on educating candidates through the Chartered Accountants Program andengage in advocacy and thought leadership underpinned by our members knowledgeand experience. We influence a range of policy areas impacting the Australianeconomy and domestic and international capital markets.

    A watershed member vote in 2013 set the course for the Institute to amalgamate withthe New Zealand Institute of Chartered Accountants, subject to obtaining formalgovernment approvals and effecting amendments to constituent documents. Theproposed new institute Chartered Accountants Australia and New Zealand isexpected to have more than 90,000 members in total with over 17,000 candidates,

    giving us greater scale and influence on the world stage.

    The national economic context

    There is no question that the economic task ahead of the nation is immense, and giventhe challenges outlined in last months Mid-Year Economic and Fiscal Outlook, framingthe 2014-15 federal budget will be a difficult task for the government. But othercountries with far greater fiscal challenges have confronted their problems byrecognising the need for a considered, balanced approach.

    mailto:[email protected]:[email protected]:[email protected]:[email protected]
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    Striking the right balance

    While the government has said that current deficit and debt levels are unsustainable, the Institutebelieves drastic policy changes that focus on achieving short-term financial gains could causeinadvertent damage to the fragile economic recovery underway.

    Such changes also run counter to the governments key long-term goal to improve broad financialconditions within the Australian economy through prudent financial management.

    Instead, we believe that this years budget should focus on a new wave of targeted policiesdesigned to support a stronger and more productive Australia into the future.

    The 2014-15 federal budget must also focus on policies that will drive business activity andentrepreneurialism across all sectors, particularly key non-mining sectors that will be vital to ourproductivity in the future.

    Investment should be made in industries where Australia has an acknowledged competitive edgesuch as services, agribusiness, gas, international education, tourism, advanced manufacturing andwealth management to encourage them to innovate and remain globally attractive.

    Achieving a surplus

    The Institute believes that a one-dimensional focus on returning the budget to surplus as quickly aspossible has the potential to distract us from the economic policy issues that are most important,and the government is to be applauded for taking a more realistic stance on when a surplus will be

    achieved. Even with a $47 billion deficit expected in 2013-14, this represents just three per cent of Australias Gross Domestic Product.

    That, however, doesnt absolve the need for a commonsense plan to get the budget back into theblack, and the Institute believes that the upcoming federal budget is an opportune time to unveil aviable plan for returning to surplus.

    The attached submission sets out in greater detail the Institutes views and recommendations thatwe believe the government should consider in developing its 2014-15 federal budget.

    If you would like to discuss any aspect of this submission further, please do not hesitate to contactme on (02) 9290 5623.

    Yours faithfully,

    Rob WardHead of Leadership and AdvocacyInstitute of Chartered Accountants Australia

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    Government expenditure

    The government has made it clear that cuts to spending will form a major part of theupcoming Budget, with the Commission of Audit tasked with finding the bulk of these savings

    and efficiencies. The Institute has made a separate submission directly to the Commission of Audit, identifying potential government efficiencies and savings.

    More broadly, however, our overarching recommendation in this area is that the governmentuses the 2014-15 federal budget as a spring-board for an informed dialogue with all sectorsof the community on the future size and role of the government sector, the sustainability ofthe services it currently provides, and the tax base needed to fund those services now andinto the future.

    Infrastructure

    Infrastructure is fast becoming one of the most pressing national issues. Greater investmentin infrastructure is vital to improving productivity and provides a direct boost to economicgrowth and jobs.

    With the national infrastructure deficit estimated at over $770 billion, the Institute believesinvestments in infrastructure cannot be made on an ad hoc basis. To properly address thisdeficit, the government needs to provide an overarching national infrastructure plan thatmaps our long-term infrastructure needs, in conjunction with the states and territories.

    The 2014-15 federal budget would be an appropriate opportunity for the government tobegin this process, as part of its annual parliamentary statement on infrastructure delivery.

    Funding for this strategy may need to come from the sale of federal government assets. Thestates could also be encouraged to follow suit by being allowed to retain the income taxrevenue generated from those assets they privatise, provided the money goes towards state-based infrastructure projects.

    The government should also announce its preferred options for encouraging greater privatesector funding of projects following the release of the Productivity Commissions report intoinfrastructure in May, which includes direction on the future of user pays financing.

    The Institute supports the further development of the infrastructure bond market as a way topromote private sector financing of projects forecast to deliver sufficient returns to servicethe associated debt. With appropriate structuring, government funding and bonds could

    potentially be combined to finance particular projects.The Institute is conscious that the design of infrastructure bonds in the 1990s was tainted bythe way in which they were later engineered into a sought after tax effective investmentmarketed to high-wealth individuals. In light of this, any tax concessions associated withsuch products in the future would need to be based on better policy foundations.

    Recommendation

    This government should set out a long-term strategy for national infrastructure investment andaccompanying funding arrangements, including direction on the future of user paysarrangements.

    http://www.charteredaccountants.com.au/The-Institute/Who-we-are-and-what-we-do/News-and-updates/News/271113-Commission-of-Audit-submission.aspxhttp://www.charteredaccountants.com.au/The-Institute/Who-we-are-and-what-we-do/News-and-updates/News/271113-Commission-of-Audit-submission.aspxhttp://www.charteredaccountants.com.au/The-Institute/Who-we-are-and-what-we-do/News-and-updates/News/271113-Commission-of-Audit-submission.aspxhttp://www.charteredaccountants.com.au/The-Institute/Who-we-are-and-what-we-do/News-and-updates/News/271113-Commission-of-Audit-submission.aspx
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    Taxation

    Fiscal sustainability

    Over the past year, revenue write-downs have had a major effect on the nations budgetposition. This deterioration in the tax base needs to be addressed.

    The 2014-15 federal budget should therefore be the starting point for a national conversationabout tax reform. This could include an education campaign explaining why tax reformneeds to be on the national agenda and a series of green papers on key tax reform topics topromote community discussion and engagement in the lead up to the tax reform white paperpromised by the government within this term of office.

    Any conversation about tax reform should include discussion around whether our current taxbase needs to be expanded and the role that a broader based GST with a higher rate mightplay as part of a longer-term rebalancing of our tax system.

    The Institute believes broadening the tax base will help deliver the fiscal capacity needed tocover the expected increases in expenditure in healthcare, infrastructure and education.

    The government should also consider implementing smaller regulatory changes whichalleviate the compliance burden on taxpayers from 2014-15 onwards.

    Recommendation

    The government should use the 2014-15 federal budget to outline how we can move towardsa more sustainable tax base and start a national conversation about tax reform and the role abroader based GST with a higher rate might play.

    Corporate tax competitiveness The need for a roadmap

    The government is committed to a cut in the rate of company tax from 30 per cent to 28.5 percentfrom 1 July 2015 1

    .

    However, those large companies which will pay the levy under the proposed Paid Parental Leavescheme (PPL) will gain no benefit from the tax rate reduction.

    Institute members working with the large corporate sector have reported an increased focuson the fact that Australias corporate tax rate remains static at 30 per cent at a time whencomparable jurisdictions have gradually reduced their rates. Their concern is not so muchwith the PPL scheme, but with the failure to follow-up on what is regarded as one of the keyrecommendations of the Henry Review the reduction in Australias company tax rate to 25per cent over the short to medium term. These members feel that some businesses arecontemplating leaving Australia (or locating business units offshore) because of taxcompetitiveness and some potential inbound investors are choosing to go elsewhere for thesame reason.

    The Institute readily recognises that cutting the company tax rate is difficult to implement the Henry Review even said that the timing of any corporate tax rate cut should be subject

    1 The Coalitions Policy to Lower Company Tax , August 2013

    http://lpaweb-static.s3.amazonaws.com/The%20Coalitions%20Policy%20to%20Lower%20Company%20Tax.pdfhttp://lpaweb-static.s3.amazonaws.com/The%20Coalitions%20Policy%20to%20Lower%20Company%20Tax.pdfhttp://lpaweb-static.s3.amazonaws.com/The%20Coalitions%20Policy%20to%20Lower%20Company%20Tax.pdfhttp://lpaweb-static.s3.amazonaws.com/The%20Coalitions%20Policy%20to%20Lower%20Company%20Tax.pdf
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    to economic and fiscal circumstances but the key rationale behind it is to encourageincreased private sector investment and growth, which has clear flow-on benefits forproductivity improvements, job creation and increased household spending.

    While Australia adopts a static approach for the meantime, other countries many of whomhave similar economic and budgetary concerns to Australias have recently moved to builda more competitive corporate tax environment as part of an overarching strategy to buildnational prosperity and with it, improved tax collections from businesses and the citizensthey employ (see Chart 1).

    Given that investment decisions are made for the medium to long term, business would findit extremely useful if the government mapped out a high level strategy for Australiascorporate tax environment as a prelude to the governments white paper on tax reform.

    Chart 1: Comparing corporate tax rates

    Source: KPMG website, Corporate Tax Rates Table

    Recommendation

    The government should outline a plan for how it intends to create a competitive corporate taxregime.

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    Base Erosion and Profit Shifting

    The issue of base erosion and profit-shifting is of particular significance this year, as thegovernment has put it on the agenda of the upcoming G20 meetings around Australia.

    The Institute has been calling for this issue to be discussed at an international level for sometime and the governments moves to do so are welcomed. We welcome the opportunity tobe engaged in Treasury consultations on this project.

    The government should, however, avoid taking any steps that sees Australia tackle the issuealone. Australia is heavily reliant on direct foreign investment to drive growth. If only somedeveloped and emerging nations are taking action, multinational companies may decide theycan operate more easily, and for less, in another country. Taking unilateral action oninternational tax issues could jeopardise jobs and have a negative effect on our economy.

    Recommendation

    The government should remain aligned with OECD standards in relation to the taxation ofmultinational companies, but be mindful of the need to help Australian businesses remaincompetitive with their international counterparts.

    The Paid Parental Leave scheme

    As is already well known, the governments policy 2

    is to implement the PPL scheme with effectfrom 1 July 2015. The PPL scheme will be funded by a 1.5 per cent levy on companies withtaxable incomes in excess of $5 million and only to that part of the taxable income that exceeds

    $5 million. Approximately 3,000 large companies are expected to be impacted.Leaving aside the policy objectives underlying the PPL scheme, there is concern within thecommunity as to whether the scheme, as currently proposed, is affordable.

    Businesses also need to model the impact of the PPL scheme in their forward budgeting,consider any modifications to their existing in-house maternity leave arrangements (which insome cases involves revisiting enterprise bargaining agreements), and large companies need tocommunicate with shareholders on the impact of the paid parental leave levy on futureprofitability and payment of franked dividends. Shareholders in large companies which pay thelevy also need guidance on how their dividend returns will be impacted by the levy.

    Recommendation

    The budget should reveal further detail on: how the PPL scheme will be funded; budget projections from the PPL levy and the flow-on impact to shareholders in terms

    of reduced entitlements to franking credits; the legislative design features of the proposed levy, including any consequential

    impact on the dividend imputation provisions in the income tax law.

    2 The Coalitions Policy for Paid Parental Leave , August 2013.

    http://www.nationals.org.au/Portals/0/2013/policy/Paid%20Parental%20Leave.pdfhttp://www.nationals.org.au/Portals/0/2013/policy/Paid%20Parental%20Leave.pdfhttp://www.nationals.org.au/Portals/0/2013/policy/Paid%20Parental%20Leave.pdfhttp://www.nationals.org.au/Portals/0/2013/policy/Paid%20Parental%20Leave.pdf
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    Income tax base broadening and cutting compliance costs

    In the event that the governments short-term objectives for this budget make it necessary toconsider changes to the income tax law, the Institutes preference would be for measures

    which broaden and/or simplify the tax base by reducing or repealing tax concessions (e.g.deduction entitlements, exemptions, offsets and preferential rates).

    As a general rule, tax expenditures (tax breaks):

    must be paid for in the sense that tax collections elsewhere need to be higher inorder to fund the concession and ensure government services are maintained;

    may miss their intended target, unless very well designed, and distort decision-making as taxpayers position themselves to satisfy the eligibility criteria;

    create winners and losers, with community concern over the influence of lobby

    groups, and\or

    often add complexity to the tax law and the tax administration process.

    We acknowledge that, once in place, political and distributional factors mean that it isextremely difficult to withdraw tax concessions. Any decision on the tax concessions to betargeted in the federal budget should therefore:

    focus on areas which will increase the efficiency of resource allocation, and

    be informed by the final report of the Henry Tax Review so that the government cancite to the public both the policy foundation for its decision and the link to thegovernments own upcoming tax reform white paper.

    Reducing the backlog of outstanding tax measures

    The government is to be congratulated for proactively addressing the issue of announced butunenacted measures 3

    .

    The 2014-15 federal budget provides an opportunity for the Treasurer to update the professionaland business community on the progress of the to proceed measures.

    A number of follow-up tasks remain:1. A rapid, effective design, development and implementation process needs to be put in

    place for those unenacted tax measures which the government has decided to address bylegislative amendment.

    2. The promised transitional (no detriment) relief provision must be introduced for thosewho relied on announced but unenacted measures.

    3. The government should make clear its stance on the granting of a discretionary power(referred to within ATO circles as a statutory remedial power) to the Commissioner of

    3

    Treasurer and Assistant Treasurer press release, Restoring integrity in the Australian tax system , 6November 2013; Assistant Treasurer press release, Integrity restored to Australias tax system , 14December 2013.

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    Taxation to address defective tax law in a manner which reflects the policy intent of thelaw and is beneficial to taxpayers.

    4. A new model for implementing changes to our tax law needs to be embraced to ensurethat the backlog of announced but unenacted measures does not re-occur.

    1. Unenacted tax changes requiring legislative amendment

    Consultations with Treasury and ATO officials on the tax measures which are to proceed areexpected to commence shortly. Given that these measures reflect those unenactedannouncements which the professional bodies and tax professionals regarded as most in need ofa legislative fix, it is pleasing to see the government intends to have the bulk of legislation passedby Parliament during 2014.

    There is concern among Institute members about the public sector resources available to design,

    develop and implement the tax changes within the governments timeframe, particularly in light ofstaff reductions impacting the public service and the focus of senior Treasury officials on OECDand G20 projects during 2014.

    The Institute has also put forward ideas for improving the way in which future changes are madeto our tax laws (see below).

    Recommendation

    The federal budget should include an update on the progress of unenacted tax measureswhich the government has agreed to address by legislative amendment.

    2. Commissioners discretionary power

    At the meeting of the National Tax Liaison Group held in Brisbane on 12 December 2013, theprofessional bodies and senior officials from Treasurys Revenue Group and the ATO agreed thatpreliminary work be undertaken on the design of a benign discretionary power enabling theCommissioner to address minor anomalies and defects in the tax law.

    The initial work is being undertaken by the Law Design and Practice Group within the ATO andthe Institute is involved in follow-up consultations expected to occur early in February 2014.

    The final decision on whether such a discretionary power should be enacted depends of courseon the government.

    The Institutes position is that there is merit in exploring the proposal. However, drafting andconsultation should have progressed by the time the 2014-15 federal budget is delivered and weexpect by that stage to be in a better position to express a more considered opinion.

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    Recommendation

    Subject to the progress of drafting and consultation, the government should indicate in thefederal budget whether it supports the granting of a discretionary power to the Commissionerof Taxation.

    Such an announcement could form part of a broader context in which the government outlinesits plans to:

    prevent a re-occurrence of the backlog of announced but unenacted measures, simplify the tax law.

    3. A new approach for implementing changes to the tax law

    In the Institutes briefing paper Solving the problem of the tax announcement backlog 4

    weadvocate for substantive structural changes to tax policy and tax law design processes to

    achieve a more sustainable self assessment tax system.

    The actions suggested in the briefing paper to achieve a longer term solution include:

    revisiting tax policy and tax law design project management processes, resourcingand engagement models

    developing key performance indicators for consultation and legislative processes thatare measured and reported

    moving to a semi-annual cycle for tax bills and announcements; and

    releasing in the Budget papers a tax policy and tax law design stocktake, withTreasury ministers reporting thereon.

    The briefing paper provides further detail on these action items.

    Recommendation

    The government should outline a longer term plan for improved tax policy and tax law designprocesses as well as future tax consultation, tax announcement and tax legislationprocedures.

    Employee share schemes and start-ups

    The Institute welcomes the governments decision to address concerns raised by start-upcompanies in relation to employee share schemes and we have lodged an expression ofinterest with Treasury to participate in consultations.

    The tax policy arguments on this topic are well known (i.e. encouraging start-ups within Australia, attracting and retaining talented staff, valuable tool for cash constrained entities),as are the complexities of current tax rules and the difficulty of applying them to start-ups.

    ! Institute of Chartered Accountants Australia briefing paper, Solving the problem of the taxannouncement backlog, September 2013.

    http://www.charteredaccountants.com.au/Industry-Topics/Tax/Exposure-drafts-and-submissions/Submissions/Treasury/060913-Briefing-paperhttp://www.charteredaccountants.com.au/Industry-Topics/Tax/Exposure-drafts-and-submissions/Submissions/Treasury/060913-Briefing-paperhttp://www.charteredaccountants.com.au/Industry-Topics/Tax/Exposure-drafts-and-submissions/Submissions/Treasury/060913-Briefing-paperhttp://www.charteredaccountants.com.au/Industry-Topics/Tax/Exposure-drafts-and-submissions/Submissions/Treasury/060913-Briefing-paperhttp://www.charteredaccountants.com.au/Industry-Topics/Tax/Exposure-drafts-and-submissions/Submissions/Treasury/060913-Briefing-paperhttp://www.charteredaccountants.com.au/Industry-Topics/Tax/Exposure-drafts-and-submissions/Submissions/Treasury/060913-Briefing-paper
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    Given that consultations close on 7 February 2014, it is hoped that the governmentsresponse would be available by the time the federal budget is handed down.

    Recommendation

    The 2014-15 federal budget provides the government with an opportunity to announce itspolicy response to consultations on employee share schemes and start-ups.

    The Board of Taxation and its reports into aspects of the taxation system

    Institute members practicing in tax have noted the complex tax topics currently underconsideration by the Board of Taxation. These topics relate to areas where practitioners and theirclients have encountered substantial difficulty in understanding and complying with the law.

    In some cases such as the review of Division 7A of the Income Tax Assessment Act 1936 theBoard has sought and received additional time to undertake its work.

    The Institute acknowledges the importance of the Boards work, and the valuable input it receivesfrom external advisers.

    Recommendation

    In considering funding allocations in the 2014-15 federal budget, the Institute recommendsthat:

    the government continues its support for the Board and considers whether currentresourcing is adequate, and

    innovative models for Board and Advisory Panel membership be implemented so thatthe Board has access to the technical skills it needs, at the right time, for the particulartax topic under consideration.

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    Red tape reduction

    One of the governments key objectives for its first ter m is the reduction of the red and green tape

    compliance costs for business by $1 billion each year 5

    .

    The Institutes understanding is that each government department and agency has beenasked to identify and implement red tape reduction strategies, assisted in part byrepresentatives from a new deregulation unit located within the Department of PrimeMinister and Cabinet.

    The government has also announced that on 26 March 2014 (repeal day) the Parliamentwill consider an omnibus red tape reduction bill and a series of specific deregulation bills.

    This is a laudable objective and the federal budget provides an ideal forum for thegovernment to provide a progress report.

    The government will need to be aware that regulations take time to unravel and thoseimpacted by the change need to understand the new regulatory boundaries and thetransitional rules which apply as they move from the old to the new.

    Recommendation

    The federal budget should list the achievements to date on red tape reduction, with referenceto:

    the relevant government agencies which have made achievements towards this goal, the legislation it administers, the repeal dates and any transitional arrangements, and community sectors which have benefited from repealing the measure.

    Obtaining broad community input to reducing red tape

    The Institute notes that similar red tape reduction programs in other countries have benefitedfrom broad external stakeholder input, as distinct from a government or big business view of howsuch goals can be achieved.

    In the United Kingdom for example, the Cabinet Office has sponsored a website Red TapeChallenge which allows all in the community to comment on red tape issues. Every few

    weeks the website focuses on the particular regulatory burden which impacts a specificsector or industry. Once input from the public has been obtained, the relevant governmentdepartment or agency has three months to work out which regulations should be kept andwhy. The default presumption is that burdensome regulations will be abolished. If theregulation is to be kept, the relevant Minister must sign-off on the decision.

    The open, systematic and accountable way in which red tape reduction operates in the UnitedKingdom provides a useful model for Australia. The governments cost of collecting input isminimised through the use of a readily accessible website which could be promoted by numerouscommunity groups.

    # The Coalitions policy for small business , August 2013. See also Boosting productivity and reducingregulation .

    http://www.joshfrydenberg.com.au/guest/mediaReleasesDetails.aspx?id=81http://www.joshfrydenberg.com.au/guest/mediaReleasesDetails.aspx?id=81http://www.joshfrydenberg.com.au/guest/mediaReleasesDetails.aspx?id=81http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/http://lpaweb-static.s3.amazonaws.com/13-08-19%20The%20Coalition%E2%80%99s%20Policy%20for%20Small%20Business.pdfhttp://lpaweb-static.s3.amazonaws.com/13-08-19%20The%20Coalition%E2%80%99s%20Policy%20for%20Small%20Business.pdfhttp://lpaweb-static.s3.amazonaws.com/13-08-19%20The%20Coalition%E2%80%99s%20Policy%20for%20Small%20Business.pdfhttp://www.liberal.org.au/boosting-productivity-and-reducing-regulationhttp://www.liberal.org.au/boosting-productivity-and-reducing-regulationhttp://www.liberal.org.au/boosting-productivity-and-reducing-regulationhttp://www.liberal.org.au/boosting-productivity-and-reducing-regulationhttp://www.liberal.org.au/boosting-productivity-and-reducing-regulationhttp://www.liberal.org.au/boosting-productivity-and-reducing-regulationhttp://lpaweb-static.s3.amazonaws.com/13-08-19%20The%20Coalition%E2%80%99s%20Policy%20for%20Small%20Business.pdfhttp://www.redtapechallenge.cabinetoffice.gov.uk/home/index/http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/http://www.joshfrydenberg.com.au/guest/mediaReleasesDetails.aspx?id=81
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    Recommendation

    The government should consider ways in which greater community involvement can beobtained in identifying red tape reduction opportunities.

    Utilising the talents of external advisers to help simplify the law

    Although initial red tape reduction targets are achievable by administrative action (which identifiesthe low-hanging fruit), a far more beneficial outcome can be achieved by simplifying the lawsand regulations which gave rise to the burden in the first place. This obviously requires the activeinvolvement of the relevant government ministers and cabinet, and a bi-partisan commitment tomake space available in the parliamentary timetable for amending legislation.

    Our experience in advocacy work over many years indicates that serious attempts to simplify thelaw often run aground whenever legislative change is required. This can be due to a range offactors, ranging from a lack of support from the relevant advisers or Minister to limited draftingresources within the Office of Parliamentary Counsel.

    The inertia that results is particularly disappointing given that many government departments andagencies are supported in their work by external stakeholder groups whose members have highlevels of subject-matter expertise. In some cases, these consultation arr angements have beensupplemented by the establishment of formal advisory bodies or boards 6

    .

    We acknowledge that many of these consultation forums and advisory groups do not currentlysee simplification of the law as part of their current remit. Our point is that there is much externalexpertise available to government, and in many cases the tasks currently undertaken could quiteeasily be altered to include simplification of the relevant laws and regulations with which they areconcerned. The Institute believes these experts should also be asked to contribute first drafts ofsuggested changes to the law.

    The government could trial such an exercise in a specific area the Institute recommends fringebenefits tax where the law is generally acknowledged to be overly complex and imposesexcessive compliance costs on employers.

    Recommendation

    The government should consider using the expertise of external stakeholders in the drafting ofchanges to legislation, with a trial project focusing on fringe benefits tax legislation.

    6 In a taxation context for example, there are various consultation forums operating under the

    auspices of the Commissioner of Taxation and his National Tax Liaison Group. More formally, theBoard of Taxation assists government with tax law policy and design issues, while the Inspector-General of Taxation focuses on issues to do with the administration of the tax law.

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    E-Government

    The Institute supports the Coalitions pre-election E-Government policy to use technologymore effectively in the public sector 7

    .

    We see great potential in the use of technology to reduce red tape, particularly in relation tothe governments commitment to make all government services and public interactionsavailable digitally, as well as in hard-copy, by 2017.

    The Institute also supports the ATOs proposal to provide individual taxpayers with relativelystraightforward tax affairs with a pre-filled income tax return which they can access and lodgeonline at www.my.gov.au .

    The ATO should look to further develop the www.my.gov.au site so it eventually becomes themain electronic interface between government and Australian citizens for straightforward tax andtransfer payment arrangements, with appropriate back-up support for those unable to use the

    technology.In relation to the use of Standard Business Reporting (SBR), despite recent improvements in thetake-up rate of the technology, there are still many businesses which remain reluctant to embraceSBR because they are yet to be convinced that the costs outweigh the benefits gained throughlower compliance costs.

    There is a case for the government to pursue a mandatory requirement for lodgment of financialreports by listed entities using SBR, subject to undertaking appropriate analysis of the regulatoryimpact of such a change. One beneficial outcome from such an approach (along withinternational comparability and competitiveness) would be the availability of better information forcapital markets investors, on the basis that data will be easily accessed, compared and analysed.This would enable more informed decision-making across capital markets.

    However, the Institute is against mandating an SBR requirement on non-listed entities as it islikely to unnecessarily increase their regulatory and compliance costs at a time when they areleast likely to be able to afford it.

    Instead, the ATO could promote increased use of SBR by considering ways in which, in anadministrative sense, business taxpayers and their advisers can be rewarded for embracing thetechnology (e.g. faster turnaround times, lodgment concessions, shorter periods of review).

    Recommendation

    The government should embark upon consultations with relevant stakeholders (within andoutside government) to determine the feasibility of mandatory SBR for listed entities only.

    The ATO should also consider whether more can be done to encourage non-listed entities toembrace SBR by offering administrative benefits for SBR users.

    7 The Coalitions Policy for E-Government and the Digital Economy , September 2013.

    http://www.my.gov.au/http://www.my.gov.au/http://www.my.gov.au/http://www.my.gov.au/http://www.my.gov.au/http://www.my.gov.au/http://www.liberal.org.au/latest-news/2013/09/02/coalition%E2%80%99s-plan-digital-economy-e-governmenthttp://www.liberal.org.au/latest-news/2013/09/02/coalition%E2%80%99s-plan-digital-economy-e-governmenthttp://www.liberal.org.au/latest-news/2013/09/02/coalition%E2%80%99s-plan-digital-economy-e-governmenthttp://www.liberal.org.au/latest-news/2013/09/02/coalition%E2%80%99s-plan-digital-economy-e-governmenthttp://www.my.gov.au/http://www.my.gov.au/
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    Superannuation

    Ten per cent rule Deductibility of personal superannuation contributions

    The Institute believes that in the interests of equity, a tax deduction for personal superannuationcontributions should be available to all employees who receive employer superannuation support.

    The current 10 per cent rule means that only taxpayers who earn less than 10 per cent of theirassessable income from an employer source can claim a tax deduction for personalsuperannuation contributions. Access to this deduction is actually only available to relatively fewpeople, generally those who are self-employed.

    However, employees who work for employers that allow them to salary sacrifice superannuationcontributions effectively overcome this issue. That is, they can forgo salary and wages tocontribute (or have contributed for them) tax effective superannuation contributions up to theconcessional cap. This means employees whose employers do not allow them to salary sacrificeare disadvantaged because they are unable to make tax deductible personal super contributionsand their employers will not facilitate them increasing their contributions through salary sacrificearrangements.

    Australians trying to save for their retirement should not be deprived of superannuationconcessions by working for an employer who does not allow them to salary sacrifice intosuperannuation. In our view, it would be more equitable and efficient to permit employees tomake personal concessional contributions in order to top up their employer contributions. Webelieve this policy would encourage people of all ages and wage levels to provide more for theirretirement.

    Importantly, this policy would also ease the administrative burden on small businesses, as theywould no longer be compelled to offer their employees salary sacrifice arrangements forsuperannuation. The onus for facilitating additional superannuation contributions would be takenaway from employers and put back in the hands of the individual.

    As explained below, the removal of the 10 per cent rule will also facilitate improvements to theequity and integrity of the super guarantee laws.

    Recommendation

    The government should enable all Australians, regardless of work circumstances, to claim a

    tax deduction for personal superannuation contributions (up to permissible caps). This would: provide equity for those whose employers will not permit salary sacrificing; and

    reduce the administrative burden on employers who are currently offering salarysacrifice arrangements to their employees.

    Salary sacrificing and superannuation guarantee contributions

    The Institute believes it is timely to review a number of measures to simplify processes andensure the integrity of the workings of the super guarantee laws.

    Under current legislation, employers who offer employees salary sacrifice arrangements toincrease their superannuation contributions are able to use their employees salary sacrificed

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    amounts to satisfy their own obligations to pay 9.25 per cent superannuation for thoseemployees. This discourages employees from making additional contributions to increase theirretirement savings, because by doing so they may be forgoing their entitlement to prima facie9.25 per cent employer super payments. While many employers will pay the 9.25 per centsuperannuation guarantee regardless, some will take advantage of the legislation for their owngain and the detriment of their employees. Note, the abolition of the 10 per cent rule as outlinedabove may negate the need for changes as employees will not need to salary sacrifice in order tomake additional super contributions.

    A further anomaly exists in the legislation that deals with employees participating in salarysacrifice arrangements. Currently, employers are only obliged to make superannuation guaranteecontributions based on their employees reduced wage amount. That is, the superannuationguarantee amount is calculated on salary and wages after salary sacrifice. If an employee doessalary sacrifice amounts into super, the amount of super guarantee contributions they are entitledto diminishes also. Again, the abolition of the 10 per cent rule as outlined above will negate theneed for changes as employees will not need to salary sacrifice in order to make additional super

    contributions.Both of the above issues are at odds with the governments policy of requiring 9.25 per cent ofearnings to be contributed to superannuation. In effect, current legislation reduces the amount anindividual saves over their working life, and instead benefits the employer.

    Addressing these two issues should have minimal impact on the budget bottom line, whilerectifying inequities and directing monies to their rightful place in superannuation.

    Timing of employer superannuation contributions

    Employers making superannuation guarantee contributions are obliged to make thesecontributions within 28 days after the end of the quarter. However, there is currently no legalrequirement for the timing of employer contributions that are made as a result of an employeessalary sacrifice arrangements, other than what may be prescribed under an award or salarysacrifice agreement. The Institute would support a requirement for employers to make salary-sacrificed contributions, at a minimum, in line with superannuation guarantee contributions.

    Recommendation

    The Institute recommends that the government amend the Superannuation Guarantee(Administration) Act 1992 so that:

    employers are not able to utilise salary sacrificed superannuation contributions to

    satisfy their own superannuation guarantee obligations; employers are required to calculate their superannuation guarantee obligations on a

    gross basis, before salary sacrifice arrangements are considered; and

    all employer superannuation contributions, including salary sacrificed amounts berequired to be paid no later than 28 days after the end of the quarter.

    Review of superannuation benefits

    With an aging population, life expectancies increasing and a growing number of Australians

    drawing down on their superannuation savings, the Institute encourages the government toconsider a comprehensive review of benefit payments within the superannuation system. Such areview should consider lump sum versus income stream benefits (incentives for income streams,

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    possible restrictions on lump sum withdrawals, taxation arrangements etc). The review shouldalso look at post-retirement products and the development of annuity type products.

    While much work has been done and continues to be done on the growth and operation of thesuper system, a closer analysis of the post-retirement aspects of super is warranted to ensurethat the overall retirement incomes system can provide an adequate standard of living for all

    Australians in their retirement. A strong, sustainable superannuation system is the cornerstone ofour retirement incomes system. While the health and growth of superannuation during theaccumulation years is vital, so too is the draw down phase for long lasting and equitable fundingof retirement, particularly as it interacts with the government funded aged pension.

    Recommendation

    The government should consider, as a matter of priority, a review of post-retirement productsin the superannuation system, including inter alia:

    incentives for income streams;

    taxation and other arrangements for lump sum payments; and

    development of annuity type products.

    Transition-to-retirement pensions

    The Institute would also encourage a review of the current transition-to-retirement pension rules.We believe the original policy objective of these arrangements continues to be appropriate, as asupport measure for those who are genuinely transitioning from work to retirement. However, thelegislative design of these rules has allowed the use of these types of pensions as a taxminimisation vehicle by individuals who are not genuinely transitioning to retirement, but who, inmany cases continue to work in full-time employment without any immediate plans to movetowards part-time employment as part of their retirement strategy.

    We believe that amendments to this aspect of the superannuation system may be warranted tobetter align the specific tax rules with the original and enduring policy objectives of transitioningtowards retirement.

    Recommendation

    The government should consider, as a separate measure, or as part of an overall review ofsuperannuation benefits, amending rules to ensure that those accessing their benefits as partof a transition-to-retirement arrangement are bona fide transitional retirees.

    Superannuation Contribution Caps

    The Institute is aware of the budgetary pressures currently faced by government and its focus onred tape reduction across the business and broader community. However, we take thisopportunity to re-iterate our concerns on the current level of superannuation contribution caps.The current concessional contributions cap at $25,000 is too low and needs to be re-instated toits original levels of $100,000 for those aged over 50 and $50,000 for others.

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    There is no question that if Australians are to retire with adequate superannuation balances, theymust have appropriate capacity to save throughout their working lives. The final balance onretirement is, by its very nature a product of the available inputs over the years.

    We understand the government during the recent election processes committed to reviewing thelevel of caps, subject to budgetary constraints. We strongly urge the government to renew thiscommitment with timeframes placed on when such a review will take place.

    Recommendation

    The government should review the level of superannuation contribution caps. Despiteassurances during the recent election, a re-commitment with timeframes is needed.

    Low Income Superannuation Contributions (LISC)

    As a matter of fairness and equity, the Institute encourages the government to re-consider itsposition on the LISC measures.

    While we appreciate the governments reasoning for its removal in the first instance (linkages withthe mining tax legislation), the effective refund of superannuation contributions tax so that lowincome earners are no worse off than if they had received the income directly in their own handsis good public policy.

    While its re-introduction may not be possible in the short term due to budgetary constraints, theInstitute would encourage the government to commit to its re-introduction in the coming years.

    RecommendationThe government should commit to the re-introduction of the Low Income SuperannuationContributions scheme to ensure low income earners are not disadvantaged by having theirearnings directed to their superannuation fund instead of into their own hands.