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2Government Business Relations


The functioning of any state depends on the government’s ability to have in providing services to its citizens. The only way through which the authorities can accomplish their responsibilities towards their subjects is by being able to raise revenues, and one of the principle ways of doing that is via the collection of taxes from individual taxpayers as well as businesses (Ganelli & Tervala, 2012). According to the authors, the respective government must have a policy framework in place to aid it in the tax collection and administration process. The system must remain relevant to the needs of the concerned jurisdiction, enabling it to meet its goals in the best way possible. The only way to keep a tax system in tandem with the realities of financing needs is by ensuring that the state institutes tax reforms as the need may arise so that it can achieve its goals. Tax reform involves instituting change to the way the state collects or manages its taxes, and the goal is to improve the tax administration system as well as to provide social and economic benefits (Ganelli & Tervala, 2012). This paper explores the status of tax reform in Australia, focusing on the difficulties that the government faces in instituting tax reforms, the potential winners, and losers in the reform, as well as the stakes that the various interest groups in the reform debate have.

Australia is one country in which the debate on tax reform has been going on for a while now. The country has a tax system that enables it collect and administer taxes in the country and meet the state’s financing needs. The system has however come under criticism in recent years for failure to adapt to the changing environmental dynamics (Whiteford, 2010). The treasurer released a white paper in March 2015 that among other things kickstarted the conversation on tax in the country and raised the problems or possible deficiencies that face Australia’s tax system (, 2016). Among the issues raised is the high cost of compliance, failure by the government to carry out reforms for many years as well as the challenges the system faces from the increased pace of globalization and the adoption of new technologies. To better understand the position of a tax regime concerning the optimal situation as well as the current gaps, it is imperative for one to understand the principles of tax collection and how they shape the reform agenda for any nation (, 2016).

There are several canons of taxation applicable worldwide, and they define the desired position of any tax system. A well designed and functioning tax system is one that not only meets its objective of raising revenues but also does that while balancing the core principles of equity, efficiency as well as simplicity. These three are the leading principles of a good tax system and operational framework as well as the parameters against which to assess any tax regime (Cords, 2014). There are other principles are part of a tax system and are just important as the three mentioned before. They include certainty, stability, broad base, economy, consultation, and review. Another often cited canon is sustainability, which refers to the ability of the system to meet the changing and evolving revenue requirements of governments, as well as consistency across tax laws and treatment of taxpayers (Cords, 2014).

The principle of equity is one of the chief considerations for any tax system. Equity demands justice and fairness in the way people pay their taxes (Ganelli & Tervala, 2012). As such, people situates in a similar place on the income scale should be taxed similarly. Equity comprises two aspects. First, horizontal equity implies that people earning the same amount of money and having similar ability and therefore thay are categorized in the same tax bracket (Cords, 2014). Vertical tax, on the other hand, means that people pay according to their ability. As such, people earning more should also pay more. It is only possible to measure equity by considering different sources of taxes rather than looking at a single source of tax (Cords, 2014).

The cost involved in tax collection is another critical consideration. The canon of efficiency requires that there is economy in the tax system with the goal of achieving the lowest possible cost over and above the revenue that the state raises (Ganelli & Tervala, 2012). The efficiency applies to both the government as well as taxpayers. As such, the cost of compliance for taxpayers as well the cost of collection for the government should remain low.

The third cardinal requirement of a good tax system is simplicity. Taxpayers should find it easy to understand the tax system as well as comply with its demands. As such, the government has to ensure that the laws are easy for all to understand and that all citizens remain in a position where they do not experience difficulties in the interpretation of the tax rules and regulations (Ganelli & Tervala, 2012). A simple tax system confers a host of benefits upon the state as well as on the taxpayers. First, a simple tax system better makes it easy for tax payer to pay their taxes without confunsion; moreover, it also eneble the taxpayers to be a ware of the consequences incase one fails to pay taxes. Secondly, such a system reduces the possibility of errors which would deny the government its due receipts or result in penalties and fines for taxpayers for failure to comply as they are supposed to under the tax laws. Thirdly, having a simple and an easy to understand tax regime makes the taxpayers have increased respect for that system (Ganelli & Tervala, 2012).

Australia’s tax system faces a host of challenges. In a report by consultancy firm Ernst and Young, the authors identified the problem of lack of reform over the years and a consequent lack of a mechanism to enable the authorities to carry out essential reforms to the system. There is thus no framework in Australia that would facilitate tax reform in the country, and that means the system lacks the ability to respond adequately to the challenges it faces in the day- to- day running (Ernst and Young, 2014). The authors reckon even a good and properly- functioning system constantly requires repairs and maintenance from time to time to keep it working at optimal conditions.

There have been attempts to reform the Australian tax system, but those have always ended up in disappointment and barely scratch the surface. In 2008, the government appointed a panel to conduct a root and branch review of the tax system. The panel’s task was to make recommendations on changes to Australia’s Federal as well as State tax system so that it could position the country to deal with the challenges that lay ahead (, 2014). The committee conducted consultative meetings with different groups of people and received 1,500 submissions touching on various areas of the taxation policy. After the fact finding, the panel under the leadership of former Australia Treasurer Ken Henry made 138 recommendations for reform (, 2014). However, the government has dragged its feet when it comes to implementing the suggested changes, and even the ones it has implemented have been partially implemented and subject to reversal attempts by parties opposed to the reform process.

The report by Ernst and Young on the course of Australia’s tax reform documents several reasons behind the slow pace of adoption of the much- needed reforms to Australia’s tax system. The issue of tax reform has always been a murky one in Australia. There are different parties all with their varied interests and who have different viewpoints on matters tax reform. They have the capabilities to drive as well as stall the reform process and efforts and thus hold much power over the initiative (Ernst and Young, 2014).

Political support or goodwill or lack of it is critical to determining the pace of reforms in Australia’s tax system. In Australia, opposition is very keen when it comes to matters regarding tax implementaion. They challeng the government on such motions because of the effect it has to its citizen’s. They do it regardless of the merit and for them, it does not matter how good or well thought- out the proposed measures may be just so long as they come from the government (Ernst and Young, 2014). The previous attempts to carry out comprehensive changes to the tax system have often failed because the government of the day fears that the opposition may embark on a scare campaign to damage its reputation. A political party that proposes tax reform thus faces the prisoner’s dilemma, a situation that presents negative consequences no matter the choice they make (Ernst and Young, 2014).

Among the parties that have a say in the tax reform debate include the Business Council of Australia, this is a powerful lobby organizations that represent companies in various forums. ; besides from that the organization is also registered in the Capital Market and whose capitalization is over $1 trillion and whose interest is to see its members not having to pay more higher taxes (Ernst and Young, 2014). The Australian Council of Trade Unions, a body representing two million workers, is another powerful body whose interest is in ensuring that any proposed tax measures do not have an adverse impact on their members (Ernst and Young, 2014). The Council of Small Businesses of Australia that represents 96 percent of firms in the country is a potent force in the tax debate and has a vested interest in ensuring its members are beneficiaries and not losers of any reform measures put forward (Ernst and Young, 2014).


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