Should the Australian taxation laws be simplified? This type of question is akin to the question of whether we should love our mothers. I think it is obvious to most people that it needs simplification, but exactly how it is to be reformed is a subject of considerable debate. Unfortunately, tax reform is often derailed by particular political imperatives or minority views that can impact on the overall process.
I have been a tax practitioner for around 25 years and I have seen many major and minor tax reforms. There have been continuing cries for tax simplicity. I have worked in some major accounting firms and been a tax partner in two of them. The general view that I had in relation to simplification whenever it was proposed was that it was a signal to gear up the recruiting program to deal with the simplification (complex!) changes to the law. Almost uniformly the “improvements” to the Australian tax system have created enormous complexity.
At one time it was possible for an accountant who worked in a company to understand most of the tax rules that related to their organisation. This has long passed. The knowledge of the Australian tax system is now held by a minority of accountants and lawyers and the ATO. I think the general population would be astounded to know how few people who advise on the tax system actually read the tax legislation. Only a small minority. Why? Because it is too complicated. Most tax advisers obtain their knowledge of the tax law from papers, articles and books written by people who describe what the tax law is supposed to do.
In a recent speech by Dr Ken Henry who is the Chair of Australia’s Future Tax System Review Panel and Secretary to the Treasury (you can see his signature on Australian bank notes), gave a number of principles in relation to tax reform. His third “lesson” went under the heading “Simplicity Often Gets Left Behind”. This is undoubtedly true from the experience of this tax practitioner who has churned through innumerable incomprehensible pieces of law that have been dished out to the tax advisory community. I do hope that in the new reform process that there will be actually true simplicity, but I must say that I am deeply sceptical that this will be the case. This is not because Dr Henry and the group working with him does not genuinely want simplicity. It is because the need to plug every loophole and the various political pressure points. Due to this the new law will, undoubtedly, be something more complex than first envisaged. It has always been thus. Will this ever change?