Financial crisis may present opportunities for tax reform.
LATE last year I asked a few accounting types, via the Institute of Chartered Accountants, for some ideas on ways governments might use the global financial crisis (GFC) to shake up the tax system.
Personally, I reckon the tax system is ripe for change in the midst of this GFC drama.
It would be especially gratifying if it resulted in the end of the 12-monthly cycle for personal and business tax, which I feel is inefficient and drives many silly investment decisions people make.
I got a few thought provoking answers to my query, which are broken up into 'tinkering' and 'radical' categories.
At the tinkering level, the issue of indexing raised its ugly head as usual, mainly at the state tax level.
RSM Bird Cameron's Rami Brass and Palermo Chartered Accountants' John Palermo both felt the $750,000 threshold for payroll tax ought to be lifted and indexed to wage growth. Mr Brass also pointed to the $300 Income Tax Substantiation threshold for work expenses, which has not changed for at least 10 years.
Brierty CFO Tony Bevan reckoned it ought to be abolished altogether, a suggestion that Mr Palermo agreed with but considered a radical change.
Mr Palermo also wanted to see the removal of aggregation of properties for land tax purposes.
"There is no reason why (some) landowners should be punished over other landowners because they own multiple land in one name rather than (through) a multitude of trusts and companies," he said, suggesting this tax could similarly be abolished rather than just tinkered with.
At the radical level, Mr Bevan said scrapping rebates and allowing income splitting with spouse or partner would align the tax paid by a family with the income of the family. Alternatively, he said, allowing a sizable deduction to the income earner for a financially dependent spouse and each dependent child would achieve a similar end.
Mr Bevan also suggested deductions for all education costs.
He and Mr Brass both suggested taxpayers be allowed to offset current year losses with previous years' taxable income.
At the moment, losses can be carried forward, but that presumes future gains to offset them.
"This ability to offset subsequent year losses against previous years' gains would be especially welcome in the current economic climate where people have made substantial gains in the year ended June 30 2008 and have invested those funds in the stock market," Mr Brass said.
"Currently, many people who have reinvested in the stock market would not have sufficient funds or assets to meet their tax liability."
Mr Palermo also threw in my favourite - reducing income tax and increasing GST. In my view, taxing consumption rather than earnings would reward those who worked hard and saved diligently.
Certainly, it would be tricky and would provide a perverse incentive for governments to encourage spending, but it would actually send the right message to the community.
If anyone else has their own suggestions I'd be glad to hear them. Email me direct at firstname.lastname@example.org and send them in a form that you expect to see published, preferably with your name.
FULL OF BEANS
ARE we all feeling a little overstimulated?
With $42 billion supposed to be sloshing through the system soon - depending on what the Senate does to it - we ought to be growing in confidence at this wallet-opening largesse.
Personally, I can't get excited about this idea. Certainly there is some evidence that retailers and property groups have felt some positive impact from the pre-Christmas $10 billion shot in the arm, but I have my doubts that such an approach has any lasting benefit.
In fact to me, the huge jump from $10 billion, which seemed large at the time, to the proposed $42 billion shows that the first go didn't really work.
Like Premier Colin Barnett, I think some of the ideas in the fiscal stimulus package are valid. Devoting a big proportion to education infrastructure is worthwhile in simply bringing forward expenditure in an area where it ought to be spent.
But, as I have stated before, handouts are disappointing.
To me, the consumer binge on credit, which expanded into property and equities, lies at the heart of our problems. Trying to restore it is wasteful and counterproductive.
There are countless analogies for this but perhaps the medical one is apt.
When someone is sick, medicine and recuperation are usually appropriate responses. Giving the ill a shot of adrenalin and sending them on their way may look like a cure in the short term, but it's likely to have more dire consequences soon after that.
Of course there's always the possibility that adrenalin doesn't work in the way it was intended. In the case of fiscal stimulus, that may mean people simply pocket the money instead of spending it.
In some ways, this would be beneficial because I believe we have to tone down our alarming need for consumption and return to savings as a key benchmark.
I know governments and business like people spending because it keeps the wheels going round, and big debts ensure people keep working, but it's unhealthy for everyone to have everything they want before they've earned it.