At the Tax Institute’s March 2019 National Convention, in Hobart, Professor Richard Vann, CTA, Challis Professor of Law, University of Sydney; Consultant, Greenwoods & Herbert Smith Freehills delivered the Justice Graham Hill Memorial Lecture – entitled: In Defence of the Income Tax.
It is a privilege to present the 2019 Justice Graham Hill Memorial Lecture. Graham combined the best of the academic and the professional in taxation. He was interested in public policy as demonstrated by his involvement in the work of the Taxation Review Committee in the 1970s which led to the landmark Asprey Report, with Graham’s contribution particularly in the context of the gift and estate duty. He was not afraid to stand up for an unpopular cause. Graham was a teacher in the University of Sydney postgraduate tax program from the 1960s until his death. He was successively a solicitor, barrister and judge fully involved in professional tax practice for over 40 years and devoted much of his time to the tax profession including as president of The Taxation Institute, patron of the Australasian Tax Teachers Association and president of the 2003 International Fiscal Association Annual Congress in Sydney.
One of the members of the Taxation Review Committee was Professor Ross Parsons who was a mentor to many tax academics and professionals, including Graham and me. Over 30 years ago on the eve of his retirement at the end of 1986 Ross delivered a paper entitled Income Taxation: An Institution in Decay which described the income tax as a supernova – a star in its death throes when it grows enormously in size and intensity and then withers away. While he did not foresee the end of the income tax he thought it would be significantly replaced by a consumption tax, the underlying theme being that the income tax was incoherent and by implication that a VAT/GST was coherent.
Since that time the Australian income tax has continued to grow – from one volume to four in the current hardcopy commercial versions, and while the GST has been introduced it seems unlikely that it will significantly supplant the income tax any time soon, indeed almost 20 years’ experience with the GST demonstrates that it has many of the frailties and difficulties of the income tax.
This paper will mount a defence of the income tax in two senses – it will suggest that the income tax is superior in handling issues of efficiency and fairness that other taxes (and transfers) handle less well, and also that there are some changes that should be made to the Australian income tax to maximise the achievement of those objectives.
But no tax is perfect in the real world. There are some issues in the income tax that cannot be directly solved and in some cases can be left alone but equally there are some longstanding issues that can and should be solved. In order to relate theory to practice, after dealing with what income is and the relatively recent shift in the economic policy approach to tax reform, I will examine issues which currently are – or should be – the subject of debate and hopefully throw some light on why the issues remain controversial and difficult to solve: the taxation of labour income and the significance of the family to the tax system, the taxation of income from capital and its impact on saving, the issues in taxing income small and medium enterprises (SMEs) and trusts, and the problems of taxing multinational companies in the digital era.