Andrew Murray (WA, Australian Democrats) Share this | Hansard source

The purpose of the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 is to repeal substantial amounts of inoperative tax law, including 2,600 pages of income tax law and 1,500 pages of other tax related acts. As you are probably aware, Mr Acting Deputy President, over the last 10 years plus I have had the somewhat dubious distinction of having to deal with virtually every single tax bill that has come through the Senate chamber, bar a couple of minor ones. Over recent years I have made it a practice to continually make the point as to how many more pages we were adding with a particular bill that was before us. I was pleased to see that the international tax law bill we dealt with earlier was quite thin. Here we have nearly 200 pages of additional legislation to get rid of 2,600 pages. It shows what a very difficult task this is.

The bill is arranged into six schedules. Schedule 1 repeals inoperative provisions in the tax laws. Inoperative provisions are those that no longer apply to taxpayers. Schedule 2 contains consequential amendments to various pieces of Commonwealth legislation, which are required because of the effects of schedule 1. Schedule 3 repeals provisions in income tax laws which have been identified as becoming inoperative in the immediate future. So it is a prospective schedule.

Schedule 4 makes consequential amendments arising from the operation of schedule 3. Schedule 5 contains two parts. The first part repeals 68 tax law acts that have been identified as inoperative. The second part makes consequential amendments to 30 acts required because of the schedule 5 part 1 repeals. Schedule 6 is divided into three parts. Part 1 provides for the application of the amendments made by schedules 1 to 5, part 2 has a general savings provision, and part 3 has other saving provisions and transitional arrangements. These provisions are designed to preserve powers, duties, rights and obligations in relation to the time before the repeal or amendment.

I particularly wanted to talk to this bill, even though it is in the non-controversial section, because I think it is a good time to congratulate those people—those bureaucrats—responsible for identifying the inoperative provisions and acts. It can be hard enough to work out which provisions are operative, let alone which are inoperative. It is an extremely difficult task at the best of times, even for those who may be considered tax professionals, and those involved are to be commended for their efforts. I wish to offer those congratulations in person to the officers here and to the officers listening.

Identifying the inoperative provisions is a critical first step in simplifying tax laws, and the difficulty involved in that task alone should not be overlooked, ignored or forgotten. Australia has an extremely complex set of tax laws. Although the 1936 Income Tax Assessment Act, when enacted, was only 120 pages, by 2006 the combined length of the 1936 and 1997 statutes was more than 8,000 pages long. As Mr Gary Banks—who has been around forever it seems; he is the chairman of the Productivity Commission—noted in an address to the Conference of Economists Business Symposium in 2003:

Were the rate of this growth to continue unabated, I am informed by the end of this century the paper version of the Tax Act would amount to 830 billion pages ... would take over 3 million years of continuous reading to assimilate and weigh the equivalent of around 20 aircraft carriers!

Although it is extremely unlikely that the growth of the Tax Act will continue on such an expansionary trajectory—it is unlikely, isn’t it?—it nonetheless highlights the facts that Australia has experienced a massive growth in the size of its tax laws since their inception and that it is increasingly important that attention be given to their simplification and reduction.

Recently, the Taxation Institute of Australia commissioned John Taylor, associate professor at the School of Business Law and Taxation at the University of New South Wales, to prepare a report on the compliance and complexity element of Australia’s tax laws. That, by the way, is a matter that is also before the Joint Committee of Public Accounts and Audit, on which I sit—and I am part of that inquiry. The result was Beyond 4100: A report on measures to combat rising compliance costs through reducing tax law complexity. In that report it was noted:

In 2006 the Income Tax, Fringe Benefits Tax, Goods and Service Tax and International Agreements and Superannuation legislation (in some bindings) are published in five volumes that comprise one of, if not the largest, set of tax statutes in the world.

Tax law is an area of law which is inescapable for most law-abiding citizens, and has become an integral part of a modern and civil society. However, as anyone who has ever worked with, or tried to work with, the tax laws knows, it is a very difficult system to navigate through, and cumbersome to use. It is particularly difficult when you are dealing with legislation in this chamber because there is no way you can have the Tax Act with you to refer to and correlate with. The consequence—and it is a dangerous consequence—is that senators are often required to take on trust what is before them because they are simply not equipped to cross-reference and cross-cover the matters. So the need for simplification is essential and obvious to those who care to look.

A simpler system will result in a system that is easier to use and understand. This will be of particular use to small business who cannot always afford professional tax advice, as well as those in the tax profession who must work with the tax laws on a daily basis. Even the student at university—I have been known to employ a few—will benefit from a simpler set of tax laws when they are required to study it because of their university course.

The explanatory memorandum to the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 contends:

The measures will reduce compliance costs for tax practitioners, and provide material benefits to practitioners and taxpayers who read, interpret and apply the tax laws.

That is a big claim and I hope it is a good claim. I am inclined to believe it. This conclusion is consistent with another of Associate Professor Taylor’s findings in Beyond 4100:

Empirical evidence suggests that, for individuals, the sheer size of the statute increases both the cost of compliance and the likelihood of non-compliance. Company tax has been found to have still higher compliance costs both in absolute terms and as a percentage of revenue collected.

While any effort to reduce compliance costs—and complexity—should be viewed in a positive light, it seems that there has yet to be any work done on forecasting or predicting the magnitude of the expected reduction in compliance costs. I do not expect such work to be done, because I think it would be almost impossible to do.

PricewaterhouseCoopers, a leading global accounting and consulting firm, are of the opinion, and argue, that while it is true that Australia is:

... notorious amongst OECD countries for the complex drafting and detail of its income tax laws ... the changes will do little to reduce tax compliance costs.

I was disappointed to note that remark. It is in complete contradiction to my own instincts and to that part of the explanatory memorandum which I just quoted.

Fundamentally, what Australia’s tax laws need is not only a revision of their operative and inoperative provisions but also a change in the way in which provisions are drafted. There needs to be a change in mentality from drafting highly complex and particular provisions to those which express and encapsulate overarching policy objectives and themes. This is a view which is also put forward by Associate Professor Taylor in Beyond 4100.

I commend to the tax office and the Treasury some of the remarks that have already made in the Hansard record of the Joint Committee of Public Accounts and Audit in its inquiry on tax with respect to the desirability of more draft exposure legislation in tax. Of course, I am commending it to you because I made those remarks myself, but nevertheless I think they have virtue and I ask the tax office and the departments to have a look at them.

Simplicity, along with equity and efficiency, is often considered to be one of the characteristics of a good tax system. At present Australia has a system that is far from simple. The Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 is an important and essential step in any greater efforts to change our tax law system and should be regarded as a positive step in the right direction. However, it is only part of the solution. I urge that the government build on this solid foundation and continue in its efforts to simplify Australia’s tax laws. As the Australian Democrats have long advocated a tax system that is fair, progressive, simple, transparent, effective and flexible and that has ease of compliance and encourages civic responsibility, we obviously welcome this bill and its entry into the Senate. Further, as this bill has the end goal of simplifying Australia’s tax laws, I am obviously of the view that we should support this bill, and we do support this bill.

In conclusion, I have noted some remarks elsewhere concerning this bill of a somewhat mean nature, I thought. Personally I think the Treasurer is to be congratulated on this initiative because I think getting rid of a substantial swathe of tax laws is an achievement on its own.