In an address at the Australasian Tax Teachers Association Conference in Adelaide on 20 January 2015, Justice Richard Edmonds of the Federal Court gave a paper entitled “Structural Tax reform: What should be brought to the table?“.

Edmonds J said the trade-off for Australia’s high tax-free threshold and the steep increase in rates after the tax-free threshold, is that Australia’s effective marginal tax rates are comparatively high vis-a-vis other countries with similar tax systems.

The judge considers that the calls for broadening the base of the GST without base broadening of the income tax and reduction of its high marginal tax rates “is not only politically flawed and unlikely to succeed, but is inconsistent with the generally accepted criteria or design principles which should drive the structure of the tax system”.

Turing his attention to “likely candidates” for reform, the judge made the following points:

  • Fringe benefits: a strong case exists for the total abolition of FBT and its replacement by taxing all such benefits in the hands of employees.
  • CGT discount: The judge considered it was important that the abolition of the existing CGT discount be brought to the table for consideration and informed discussion, even if any recommendation for abolition is not ultimately adopted. The same, he said, applied to Henry’s recommendation for the abolition of grandfathering for pre-CGT assets and for pre-1999 indexation arrangements.
  • Principal residence: Edmonds J said the main residence exemption should be brought to the table even if a solution is not ultimately found and adopted.
  • Negative gearing: In the judge’s view, notwithstanding the July 1985 failed attempt to deal with the loss of revenue occasioned by recourse to negative gearing, “the whole issue should be brought to the table again; this time with the benefit of the lessons learnt from the past”.
  • Superannuation: Edmonds J considers that the whole system of the taxation of superannuation in this country needs to be brought back to the table. He said it was the concessions other than the tax-free treatment of benefits for the over-60s that was “creating the demand for the system to be brought to the table for discussion and possible review”.

[LTN 15, 23/1/15]