While giving a presentation at a tax conference held at the University of Canberra on December 5th, Rob Heferen announced that the Treasurer of Australia had established a new working group to investigate and formulate plans for a potential overhaul to the corporate tax system.

The group is looking into the feasibility of a new system under which corporate tax rates would be removed for all business operating in Australia, and replaced with a new levy which would be charged on the profits of any business that reaches a pre-set return on equity level. Rob Heferen, who was appointed as head of the Treasury’s working group, said that the exact return on equity rate had not yet been decided upon, but suggested that the new levy would only be applicable to very large businesses like mining operations, banks and other large scale businesses. It was suggested that the tax rate for companies that are subject to the proposed system could be as high as 50 percent of marginal earnings.

Rob Heferen’s revealed that the Australian Council of Trade Unions and the Business Council of Australia have already discussed the overhaul with the working group, and are in support of the new proposed system.

The working group is currently evaluating the overall costs that would be associated with switching to the new system. The final report on the tax overhaul is scheduled to be presented to the Treasurer of Australia Wayne Swan by December 2012.

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On November 27th the Treasurer of Australia Wayne Swan released a statement describing the economic outlook of the country, with particular emphasis on the revenue forecasts for capital gains taxes.

According to the Treasurer, the prices of Australian stocks are stagnating, or even falling, with the national share market having dropped 15 percent since May this year. Due to the decrease, the government of Australia has lowered its previous forecast for the level of collections of capital gains by AUD 7 billion over the next four years. It is now expected that over the same period collections of personal and corporate income taxes will also plummet, although the full extent has not yet been determined.
The revision of the outlook for capital gains tax collections comes only days before the Treasurer delivers the country’s Economic Statement. It is expected that the Statement will include series of cuts to government spending aimed at compensating for the tax revenue shortfalls.

Shortly after the Treasurer revealed the reduction in the revenue forecast, the Finance Minister of Australia Penny Wong said that any ensuing budget cuts would be similar to the steps taken during the global financial crisis in 2008. She added that the government would be forced to make some difficult decisions that will affect most Australians, saying that “… there are no easy saves left to take.”

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The government of Australia remains set on achieving a budget surplus in the 2011 – 2012 fiscal year, despite seeing smaller than expected revenues in the 2010 – 2011 year and increasing financial instability around the world.

Late last week the Australian government released its final budgetary outcomes for the 2010 – 2011 fiscal year. According to the report, the Australian government saw a cash deficit of AUD 47.7 billion, or 3.4 percent of the GDP, for the 2010 – 2011 period. In a joint media release, made by the Treasurer of Australia Wayne Swan and the Minister of Finance and Deregulation Penny Wong, it was revealed that the cash deficit level compares well with other developed economies around the world.

At the end of the fiscal year the net debt of the Australian government stood at AUD 84.6 billion, or 6.1 percent of the national GDP. According to the Minister and the Treasurer, Australia’s debt levels are far below the average 75.3 percent debt level seen in other developed countries in 2010.

The government’s total tax receipts for the period were AUD 280.8 billion, which were 0.6 percent below forecasts made in May. The drop was contributed primarily to a 1.5 percent fall in corporate tax receipts.

The lowered tax revenues were compensated for with a AUD 3.6 billion drop in government spending. The Treasurer said that Australia’s budgetary position is currently one of the strongest in the world, due primarily to the government’s willingness to adhere to strict fiscal plans and disciplines.

The government will continue with its path of ongoing spending restraint and sound fiscal strategy, and will maintain its aim of reaching a budgetary surplus in the 2011 – 2012 fiscal year.

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Calls have been raised to change the way that wine is taxed in Australia in order to cut down on the occurrence of excessive drinking, and significantly raise national tax revenues. The proposal was brought forward in a report published on September 5th by the Australian Alcohol Education and Rehabilitation Foundation.

According to the authors of the report, the amount of taxes on wine should be based on the level of alcohol in the drink. Currently, Australia’s tax system for the sale of wine is based on the sales price of the product. The proposed change would bring the taxation of wine in line with the taxes currently instated on the sales of all other spirits. It is projected that the proposal would see an extra AUD 1.5 billion in tax revenues raised every year. In comparison, Australia’s newly introduced carbon tax system is estimated to raise AUD 6 billion per year. Aside from the significant tax benefits, the change will also lead to a noticeable cuts in healthcare costs associated with alcohol abuse stemming from the availability of cheap wine.

Commenting on the suggestions contained in the report Michael Thorn, chief executive of the Alcohol Education and Rehabilitation Foundation, also called for the government to reduce subsidies and tax benefits for wineries. which will further improve the country’s fiscal position. He said that the current tax treatment of the wine production sector encourages a focus on volume and not quality. He added that similar tax changes have been recommended by previous independent tax reviews, and the issue needs to be brought up at the upcoming Australian tax summit.

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One of Australia’s leading tax experts, Professor Greg Smith, has called for the country to raise its Goods and Service Tax (GST) rate by 5 percent, from the current rate of 10 percent, despite the idea being adamantly opposed by the government. The recommendation was during a speech given at a Tax Institute forum in Sydney on August 31st. Greg Smith was one of the authors of the Henry Review report, commissioned by the Australian government to provide recommendations on the future of Australia’s tax system.

The authors of the Henry Review were barred from investigating GST rate increases as a means of raising federal or state tax revenues in Australia, and GST rate increases are currently also not scheduled to be discussed at the October tax summit. However, a hike to the GST rate and a broadening of the tax’s base, were considered by the authors to be an essential measure to ensure that state governments are able to meet the rising costs of providing education and healthcare infrastructures. To circumvent the government’s unwillingness to discuss GST increases, Greg Smith recommends that a new consumption tax be considered, which would be charged alongside GST.

In his speech Greg Smith also said that the issue of GST taxation is far more important than is currently portrayed in the media. He explained that increased levels of economic activity alone are expected to raise GST revenues by AUD 12 billion by the end of the fiscal year 2014. Comparatively, in the same time frame the highly debated mineral resource tax and carbon tax are projected to raise AUD 6 billion and AUD 8 billion respectively. Personal income tax collections are slated to rise by over AUD 5o billion during the same time. Greg Smith explained that raising GST rates or instituting a new consumption tax could allow the government to lower personal taxes or decrease reliance on the new green taxes.

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