Assistant treasurer Chris Bowen wants Australia to become a financial Services centre and is also keen on better tax administration he shares his views with INTHEBLACK.
By Robert Richards
It is sometimes difficult to know just who runs the Australian tax system. On the administrative level there is the commissioner of taxation, the Board of Taxation, and the inspector-general. At the policy level sits the treasurer, the assistant treasurer, and the minister for superannuation [Senator Nick Sherry]. They all have responsibility for, or formal input into, some part of our tax laws.
However, it is the assistant treasurer who has primary responsibility for government administration of tax law as well as the design of those laws, where that design is delegated to him by the treasurer.
The assistant treasurer (who is also the minister for competition policy and consumer affairs) is the Hon. Chris Bowen MP. He holds a bachelor of economics from the University of Sydney and was elected to the House of Representatives for Prospect, New South Wales, in 2004.
Bowen was previously a parliamentary research and media officer, and before that an industrial officer for the Finance Sector Union. He is a former mayor of the Fairfield City Council in Sydney. At the beginning of May he spoke to INTHEBLACK.
ITB: A blunt question to start. What do you know about tax?
Bowen: I am an economist who assiduously avoided studying tax. But when the [prime minister] asked me to express an interest in what I would like to do, I [then] studied what I had assiduously avoided all through my studies. So, in December I went to the Parliamentary Library and took out 20,000 pages of the tax law and tax history and over Christmas read them.
ITB: Does the complexity of the tax system worry you?
Bowen: Yes. We have arguably the second most complex tax system in the world, but not the second biggest or most complex economy.
There is a disconnection between the two. But I think over time that is something we need to address. I don't think it is something that the government can address alone because part of the reason we have complexity is to deal with avoidance, and there needs to be a cultural change across the board if the government were to go down the simplification road. There would need to be an understanding in the profession as to what principle-based drafting would mean.
ITB: How are you going to change the culture?
Bowen: It is very difficult to change culture. But because of [tax] avoidance, we need to have a good think about the best way of dealing with avoidance issues.
ITB: I am often worried that principle-based drafting leads to subjectivity. Different judges might come to different views as to what the principle behind a tax law is.
Bowen: Yes, I don't think principle-based drafting is the only way. In the fullness of time there may be other things to think about.
ITB: There are two tax Acts, consolidation is a micro reform, which is needed. Will anything ever be done about that?
Bowen: I certainly hope so and I certainly think it will. The end result would be to have one tax Act but I am not prepared to put a time frame on that. But as a matter of principle we should be looking at ways of getting to one tax Act.
ITB: Micro reform is such a big area. Is there anything in the pipeline?
Bowen: No, but a number of elements will come out of the [Tax Design Panel's] report.
ITB: The difference between your role and the treasurer's is something people often don't understand. For example, they don't know who they should go to when they want to talk about tax.
Bowen: The first point is that the treasurer and I work very closely together, so there is no issue about who does what. The grey areas get sorted out. Obviously, at the end of the day my job is to support the treasurer. In terms of my role, matters of administration and implementation are mine. Decisions on tax rates and tax policies are the treasurer's. If there is a grey area talk to me in the first instance, but there is no harm in talking to both of us. I am easier to get to than the treasurer. But see Senator Sherry for superannuation.
ITB: Are you happy with the way the tax system is structured, everybody seems to have some role, you, the treasurer, Senator Sherry, the commissioner, the Board of Taxation, the inspector-general? Why not have a Reserve Bank-type board to coordinate the system?
Bowen: We have to have a strong statutory individual officer. I am not sure a board model would work.
ITB: Are you happy with the Board of Taxation?
Bowen: Yes, I think they do a good job. I don't agree with everything they say but that's how it should be. By and large I like the membership, I have just reappointed a number of them.
ITB: That leads to the inspector-general. You were going to abolish that role to save money. But it's an office that doesn't cost the taxpayer much?
Bowen: Every bit counts. We [identified that in our policy] there will be smaller savings than those in the budget.
ITB: So you think the role is an important one?
Bowen: Considering that the commissioner has so much power, and I think it is appropriate that he does have that power, given that it would be inappropriate for the commissioner to be subject to ministerial direction or supervision, an independent auditor or arbitrator, is a suitable and necessary model.
ITB: So what do you want him to look at?
Bowen: What the inspector-general looks at is a matter for the inspector-general.
ITB: You have made it quite clear that you want to develop Australia as a financial services centre. Why do you want to do that?
Bowen: Eventually I would like to get to the position where a young person wanting to work in major financial centres does not feel obliged to go to New York or London. We can't be a New York or London, we're not that big, but we can be the Asian financial services centre. We can be a Singapore or Hong Kong, and that is what we need to do.
ITB: Does that mean making Australia a tax-neutral base?
Bowen: No, just competitive.
ITB: Well, finally your chance. Tell us what do you want to achieve as assistant treasurer?
Bowen: Substantial progress for Australia as a financial centre; substantial progress on better tax administration; reduction in the time between announcement of tax changes and implementation; and better consultation.
ITB: But isn't that all just a motherhood statement?
Bowen: Exactly, but now is the time to do something about it. And I want people to understand that this government is willing to listen, we have an open-door policy.
Trusts tackled in 2008 Budget
I suspect that during our interview Chris Bowen would have liked to have been more specific with to some answers. He told me that not giving anything away 'is what they pay me for'. That's because the Budget was pending, along with the release of the Tax Design Review Panel report.
However, the 13 May 2008 Budget did not contain as many specifics as many in the profession expected. There was no attempt to simplify the tax system. Major changes to the mechanics of the system are unlikely until after the Review Panel presents its report.
Big end of town
As far as the so-called big end of town is concerned, there has been further delay to the seemingly never-finalised taxation of financial arrangements proposals, modification of the consolidation regime and company loss recoupment rules, as well as the promised finalisation of simplification of the imputation system. In-house computer software will now have to be depreciated over four years instead of two and a half years.
Withholding regime
Chris Bowen has stated that one of his prime objectives is the transformation of Australia into an international banking centre. To that end, the government announced a new withholding tax regime on distributions from Australian managed investment trusts to foreign resident investors.
These measures are aimed at real estate investment trusts, currently subject to a 30 per cent withholding tax when they make distributions to non-residents. Over the next three years the withholding tax will be reduced to 7.5 per cent, but only if the recipient is resident of a jurisdiction with which Australia exchanges tax information.
Employee share schemes
A change I have trouble understanding is when a taxpayer will be required to make an election to access the concessions available when receiving rights under an employee share scheme.
I thought, as matter of practice, this was already the case (see Taxation Office Interpretative Decision ID 2002 / 887 and Isaacs v FC of T, 22 June 2005).
I wonder whether there is more to this proposal than meets the eye.
Trusts
I suspect that a misunderstanding of the role of trusts has caused the government to confirm that it will, from 1 July 2008, reverse the former government's amendments to the family trust election rules. The definition of a 'family' for the purposes of these rules will be changed to limit lineal descendants to children or grandchildren.
I see inequity in this reversal, which is not reflective of modern personal relationships.
Fringe benefits tax
A number of changes have been made to the fringe benefits tax. The exemption for work related items such as laptop and mobile phones from the tax will be limited. 'Meal card' arrangements can no longer be used to avoid that tax. The law will be amended to overcome the decision in National Australia Bank Limited v FC of T (ironically, on 4 November 1993, this was my first tax case and was not intended to take advantage of a tax loophole). The government is concerned that this case allows tax arbitrage by showing that high marginal tax rate individuals can effectively claim tax deductions for expenses relating to property, while low tax rate associates would derive the income from the property.
Tax system review
As part of the Budget, the treasurer repeated the prime minister's pledge for a 'roots and branches' review of the tax system. However, it now appears that review will be more limited in scope. It will be a philosophical review (going to the 'roots', with the exception of GST, of the tax system and not to the 'branch' specifics. It is more likely to mirror the Ralph Committee's 1999 Business Taxation Review than the comprehensive review of the system undertaken by the Asprey Committee in 1975.
This is highlighted by the membership of the Review Panel, none of whom is likely to have any appreciation of the specifics of the tax system.
Robert Richards CPA has written INTHEBLACK's Taxing Times column for over 25 years. He is a leading tax solicitor.
