Tax Forum 2025: Geopolitics and global reform

Garreth Handley:
This is With Interest, a business finance and accounting news podcast, brought to you by CPA Australia.

Chris Hatzis:
Welcome to CPA Australia’s With Interest podcast. I’m Chris Hatzis, podcast producer. With geopolitical temperatures rising, it’s timely to examine what’s unfolding in the global tax landscape. In this special part two With Interest episode, two of the most respected voices in the tax space debate whether multilateralism works when it comes to tax revenue.

Joining us again are David Bradbury - partner at KPMG, former federal minister and assistant Treasurer, and former deputy director of the OECD's Centre for Tax Policy and Administration - and Paul Tilley, former economic advisor to Treasury and the Department of Prime Minister and Cabinet, and author of Mixed Fortunes: A History of Tax Reform in Australia.

This discussion was recorded at CPA Australia’s inaugural Tax Forum in August 2025, and was adjudicated by Jenny Wong, CPA Australia’s Tax Lead, and Dale Pinto, Global President and Chair of CPA Australia.

And don't forget part one of the discussion, which you can listen to by clicking the link in the show notes. Let’s dive in.

Dale Pinto:
All right, I'm going to change tack now. We're going to go geopolitical. David, I’m going to direct these to you given your background in the OECD. I've got four questions, if you give us just short, sharp answers on this so we can plough through the rest of the stuff. I think it is really important that we put the frame around the geopolitics at the moment. Drawing from your OECD experience, David, how would you characterise the global tax landscape at the moment? We all know geopolitical considerations are heating up. Are countries in your view pulling together on reforms like Pillar Two we were talking about in the last session, or do you think we're becoming more fragmented?

David Bradbury:
We're definitely becoming more fragmented. The question is on Pillar Two, how much of it can be preserved? There is a lot of goodwill amongst a very diverse range of countries to try and preserve Pillar Two. The G7's side-by-side statement, that's one thing. The inclusive framework on BEPS, with its almost 150 countries, they will have to respond to that and either agree to go down that path or not. I think it's an open question as to whether they do.

But what I would say is that I think we had a window of opportunity for multilateral cooperation that has closed in a sense, what was achieved with the pillars. We're not going back to that period of cooperation. But when it comes to Pillar Two, a lot of countries have invested a lot to try and make that work, and most countries have something at stake in preserving it moving forward, including the United States.

My sense is that there'll be a lot of wrangling over the coming months and years. But in the end, I think most countries signed up to a global minimum tax because they could see that there were benefits for everyone in that. That's when multilateralism works. It doesn't work when you expect one country to forgo its national interest in favour of others. It's when countries collectively form the conclusion that it's better to cooperate, and that cooperation strengthens your sovereignty.

So I think that the conclusion that countries drew was multinationals have the ability to plan across jurisdictions. If we're not involved in some degree of coordination, people are going to shift operations or activities to places where there's less tax. Going back to that slide about the tax mix of which the corporate tax is only a small part, if our ability as a country to collect that tax is reduced, then we're going to have to raise some other tax, and none of those other options are very palatable in the domestic context for everyone. So I think fragmentation, but I think Pillar Two still has more than a fighting chance to survive and to thrive.

Dale Pinto:
Follow on from that, and you've partly answered this already, but Australia's traditionally had a reputation as being a rule follower, particularly in the international context. Now we're seeing a different dynamic. We're seeing shifting alliances. We're seeing increasing economic nationalism. So do you think this remains a strength for us as a nation, or could it become our weakness going into the future and the dynamics that we're playing in?

David Bradbury:
Look, I think we've been rule followers, but we've also set the pace on a number of things as well. I think what we're experiencing at the moment is really like a moment few of us have experienced before, when we look at in particular what's happening in the United States, where tax is being used and tariffs, which are essentially trade taxes, these instruments are being used in ways that turn on its head the conventional wisdom of what is good tax policy that has prevailed for decades.

The interesting thing about the tariffs is to think about it this way. I mentioned before that the US is the only OECD country that doesn't have an economy-wide VAT or GST. Well, that's sort of true. But tariffs, they are a less efficient way of collecting revenue from consumers. In fact, if you look over the last 70 years across the globe, when you look at global tax revenues, specific taxes on consumption, a large part of them being trade taxes, have gone down in a line like that. At the same time, standard VAT/GSTs have gone up like that.

So it's really interesting to see what the United States is doing. They're almost compensating for a lack of a national VAT with discriminatory trade taxes. That's the big difference is that a VAT or GST doesn't discriminate on where the goods or services are coming from whereas a tariff does. It says, "You want to come across our border with your goods, we're going to slap you with a tax." So it's really interesting. So all of that is going on.

The real question is, how will all the other players on the field respond? Are they all going to just continue to do what we have known to be the conventional thinking, or will you start to see countries react and think, "Well, you know what? Actually, we're having this domestic debate, it's too hard to go and increase the GST"? How would people feel if I said, "We're going to slap a tax on those foreign people trying to send their goods into our market?" This debate in Australia, I think, is a little bit more nuanced and mature than that, but maybe it is easier than trying to increase the GST. So that is going to be a dynamic that is going to be played out in countries all around the world.

Dale Pinto:
You're so prescient, David. You've answered my next question, which was looking at tax policy as a geopolitical lever. So I'm going to jump to the last one in this section, and I'll pass back to our next set of questions. Again, I want to come back to this company tax rate. I know you've got a slightly different view. Given that, if I can put it this way, the perceived high company tax rate that we've got, are we at risk in Australia for losing ground if we don't adapt to the new global environment with different corporate rate structures?

David Bradbury:
Look, I think this is an incredibly difficult question. People that pretend that it's not, they're actually either coming to this with a vested interest or they're not really grappling with the issues at stake. The problem we have is dividend imputation, which was a very elegant solution to the problem of double taxation at the individual shareholder level, has become a complete handbrake on reducing the statutory rate. While other countries have reduced their statutory rate, we've not been able to move it.

I recall when I was in government talking to industry leaders about trying to bring the corporate rate down. Chairman and directors of boards without exception would say to me, "Well, look, what all my shareholders really care about is that I pay them a fully franked dividend. You know what? If you cut the statutory tax rate, then that's actually going to impact the value of my franking balance." So what we have here is we actually have an institutional form of discrimination against the foreign investor compared to the domestic investor. So we're stuck in this position where it's really hard to shift without doing something about imputation, which is incredibly challenging.

The other piece in all of this, and this has always been the challenge with cutting the corporate rate, is that we want to do that to incentivize investment, but it delivers a windfall gain to those that have already made investment decisions. That is something that I know policymakers think really seriously about that they are reluctant to see. Particularly when you look at the companies that are doing business in Australia, how much do we have to reduce the statutory rate to actually meaningfully change the amount of investment coming into the country? If you go from 30 to 28 or to 25, is that really going to shift the dial? For a lot of internationally mobile businesses, are they going to go further than Singapore to come to Australia? These are the questions that we have to be asking.

So in a sense, something that I hear people ask very rarely is, who is it that we're trying to attract? I think we need to answer that question. Then you can actually start to design a more bespoke system that is going to achieve that policy objective. It's just a bit of a frustration to me that we haven't quite got into that part of the discussion.

Dale Pinto:
No, thanks, David. Back to you, Jen.

Jenny Wong:
Yeah, that's an interesting observation, because Viva Hammer at the Allegra Spender Roundtable said the same things. Do we want to attract foreign investment? That's the first question you need to ask. But that leads into our next question. Viva Hammer recently suggested that complexity, not just high tax rates, deters investment. Is Australia's tax system more complex than those of our peers? What international best practises should we consider to boost investor certainty and confidence?

David Bradbury:
I think complexity, it is hard to avoid in tax. I've been involved in many debates in tax all of the time. Look, as a policymaker, I've had stakeholders come in and say, "All we want is simplicity." Then you come up with a proposal that will deliver simplicity but might increase the amount of tax that they have to pay, and they go, "Hang on, I don't really want simplicity. I'd rather the old system if it means that we're paying less tax." Sometimes there are difficult trade-offs in all of these things. When you make general rules, you can capture taxpayers that you may not want to capture. The minute you start carving them out, the system becomes more and more complex. So complexity is not an easy thing to deal with.

Are we more complex than other countries? Look, I'm not sure that we are. I think that there are some examples where they have definitely gone in the direction of simplicity over other tax policy objectives such as equity. For example, I'm thinking of Estonia. Estonia, basically they don't tax retained corporate profits. They only tax on distribution. Now, that makes the system a lot less complex, but it also makes it less fair. That's companies at all levels. If you have a little family company and you are able to defer the payment of any tax for decades, then there are people who are earning labour incomes that get taxed every year rain, hail, or shine. There's an issue of horizontal inequity. So I think this is one of those areas where we have trade-offs.

If I can just use one example outside of the corporate tax that I think really demonstrates this. If you think about, for example, the CGT discount, my view is you have to have some form of discounting of capital gains, or otherwise people are paying tax on inflation, and you shouldn't be paying tax on inflation. We used to have a system that was more complicated in terms of how you adjusted so that people weren't paying tax on inflation. People said it was too complicated. Then we came up with a really simple way of doing it. You hold the asset for a year and you get 50% discount. And it's simple. We've got rid of a lot of complexity, but is it a fairer system? Is it a better system? I'm not sure.

I'm not so troubled if someone holds a share for 12 months and sells it and gets a 50% discount. But if someone buys a house and they do a couple of renovations and they sell it in 12 months and one day and they make $100,000 on it and they only pay tax on $50,000, I'm not sure that that is actually the right way to adjust for inflation. That's having implications on housing affordability and things like that. So I think that there's always a trade-off here. But I don't think our system is necessarily more complicated than most. I think issues around the rate are probably more important than complexity is my sense.

Jenny Wong:
Back to Paul, do the layers of our federal and state tax system, especially taxes like stamp duty, undermine investor certainty, and what's the fix?

Paul Tilley:
Yeah, federation, it's tricky. You're a Commonwealth official, you're always thinking, "We should just abolish the states. They're such a nuisance." Then, of course, the states, they're thinking, "We should never have created this monster of federation, the Commonwealth." But then look around the world and I think, well, who are the federated countries of the world? Australia, US, Canada, Germany, Switzerland, these are not the least successful countries in the world, so maybe I should just give up on the abolishing the states thing.

But if I think about, where does that lead you in tax policy? I guess at the state level, states only raise about $120, $130 billion, something like that compared to the Commonwealth, 650. Some of their tax bases are perfectly good. They've been eroded, but they're reasonable tax bases: land tax, even payroll tax. Stamp duties is the one that's the standout, economically harmful tax. It's a transaction tax. It's a disincentive to transact, so on buying and selling houses, insurance policies, so a transition away from stamp duties. That was started with the GST, but to continue that to something else may be land tax is maybe the most obvious reform in Australia. Now, easy for me to say that. Treasury officials, governments find that a lot more difficult. So that's at the state level.

Then at the Commonwealth level, it comes back to things we've already been talking about, and I think particularly this really thorny issue of how we tax capital income. Just listening to David talking through about, well, the obvious place to think about a start is lowering the company tax rate. Can we lower it to 25%? We've got to pay for that. Dividend imputation is maybe the place to look. But how much is that going to unlock things? I assume the answer to that is no.

There are so many aspects to why foreign investment would come to a country, why capital would come to a country. Tax is just one of them. It's not irrelevant, but it's not the main game. So really, I think the way to think about it is that we just want the tax system get out of the way of what the private sector wants to do, and we don't want tax to be an impediment or a reason not to do things.

So if you think about capital income, where's the elastic capital income, the mobile capital income? Well, that's the international capital. Where's the relatively inelastic but less mobile capital? Well that's the domestic savings. So we kind of got the, the term that David used, but the dividend imputation system is skewing it exactly the other way. We give franking credits to domestic investors. We don't give franking credits to foreign investors. So we're giving the tax advantage to the less elastic capital. We're not giving it to the more elastic capital. So I think something in that space.

Now, I don't think I can formulate an exact kind of reform, but something that was about... it's a lower the rate, broaden the base idea. If we want to get that rate down, if we think that would help, then how will we pay for that? Now, you could look outside capital income. You could look at the GST, taxing consumption. But I'd prefer to look initially within capital income, and dividend imputation is the one that's sitting right there as probably working in exactly the opposite way to what we would want. So that's how I think about federal and state, Commonwealth state.

Jenny Wong:
Thank you, Paul. I might hand over to Dale.

Dale Pinto:
Yeah, sure. Projecting forward now, Paul, firstly to you, let's talk about younger Australians. It's often said they bear a heavy tax load through labour income, while capital and wealth are lightly taxed. Do you agree? If so, how would you go about recalibrating that?

Paul Tilley:
The intergenerational equity issue is difficult. If you look at a point in time, you may get a different answer if you can look at it over a lifetime. So a lot of people will move from being relatively a lower-income earner to a higher-income earner. So it's sort of a lifetime equity argument. But for the reasons David was saying that, if we're going to have to rely on personal income tax more and if the proportion of the population that's working is decreasing, then that looks like an intergenerational equity problem. I'm not completely convinced that it's quite as stark as that, but I certainly acknowledge there's an aspect of that. So definitely, we have to think about how much weight we put on personal income tax, and we have to definitely think about how long we work for.

The best thing a government can do for young people is make sure they've got jobs or they've got access to jobs, so a strong economy is a key part of that. So I think productivity enhancing reforms are really important. The fairness thing is really important. In terms of that, is it younger people, smaller group paying the personal income tax and the older, richer people paying the capital taxes? There's a natural equity argument to thinking we tax capital and labour income equally. It's like a Haig-Simons kind of idea that there's a fundamental fairness to whether you earn income, it doesn't matter what form it is, you should pay tax the same.

But then there's the alternative way to think about as a more optimal tax thinking is that, no, no, we should tax differently. We'll get a greater efficiency gain if we tax more elastic items of consumption or income more lightly. That's what takes you down the path of maybe tax capital income more lightly than labour income. Now, obviously in tax reform you have to balance these things. But I think, to me, there's something definitely in the idea that, if we want to think productivity, if we're worried about the economic growth, and things like stamp duties at the state level, but capital income is the spot to be looking.

Dale Pinto:
Yeah, great. David, just wondering, did you have anything to add in terms of participation? So women, older workers, younger people from the international context, are there any best practicses that you've seen?

David Bradbury:
Look, Australia does a reasonable job on the participation front. I guess that there are the non-tax considerations, such as things like child care, I think that's an area where there are other countries that are doing it better than us.

At the OECD, we did a number of studies around the marginal tax rates of second earners, which in a family typically are women, not always, but typically women. There's two issues that matter. One is, do you have a family-based system of taxation? In Australia, we don't. Let's think that you've got two spouses in a household, they both work, they pay tax as individuals. Some countries actually tax them as a family. When you tax them as a family, the barriers to that second earner entering the workforce are massive because you've already used up the tax-free threshold, and every extra dollar that the family earns pushes you into a higher effective marginal tax rate. Countries like France, for example, they have a family-based system of tax.

Now, we don't have that, and that's a good thing. But what we do have is we have our family payments are structured on that basis. So the same disincentives that I was just describing in the income tax context they apply to family benefits. Now, why do we do that? Well, we do it for good reasons because we want to target the support so that it goes to the people that we think need it most, and we can't give it to everyone. But the effect of that is that you can increase the effective marginal tax rates.

So I actually think the thing we should be trying to spend more time doing... I'm on the advisory group of an organisation called the e61 Institute. They're doing some research in this area around effective marginal tax rates across the tax and transfer system. I actually think that thinking more holistically about how those two systems interact is what you need to do if you really want to make ours a system that is more supportive of encouraging participation of all people that are of working age and beyond as well.

Dale Pinto:
Terrific. We're getting into red time, but I need to ask Paul one more, which is on indexation of the thresholds and so on. Apart from bracket creep and allowing us to tackle bigger issues, what are your views on that just very quickly, Paul?

Paul Tilley:
Yeah, very quickly, I wrote a paper where I recommended indexing the tax thresholds, but only because it's a distraction. I actually think there's less here to see than you first think. Governments have consistently returned bracket creep over a very long period of time. We've effectively indexed the scales not each year, but year-by-year short term. So I actually think it's largely a distraction. The bigger issues are in the base. Do we index aspects of...? How do we tax aspects of the tax base? Dave referred to, we use this crude 50% discount on CGT, maybe 40% would be closer to average inflation adjustments. It would be better if we just went back to indexing the cost tax base. So I think the substantive issues are in how inflation interacts with the tax base, not how it interacts with the tax thresholds.

Dale Pinto:
Terrific. Jen, I'll throw back to you for the last thoughts.

Jenny Wong:
Looking ahead, if you both had a blank slate and bipartisan support, what's the one major tax reform you would prioritise to future-proof Australia's economy?

Paul Tilley:
I'll start. I'd go to broaden the base, lower the rate kind of mantra, which is kind of old-school, but it's still the way I think. I would want to lower both the company income tax rate and the top personal income tax rate. But the constraint I would put on it is that the community will not accept any substantial change in the overall distribution of the tax burden. Then I would look for things to pay for those. So the company tax rate, I'd look to things like dividend imputation. Lowering the top personal tax rate, I'd look to things like making the taxation as superannuation more progressive, lowering the capital gains tax discount. So I'd think revenue neutral, keeping the overall distribution roughly where it is, but lowering rates as a way to add to productivity.

Jenny Wong:
David?

David Bradbury:
I would be looking to reduce the personal income tax. Just to give some context, I think, actually in theory, it's one of our fairest taxes, the personal income tax. It's the most progressive of all the taxes that we have. But one of the really fundamental problems that once again we don't talk enough about is that at the top end, very few wealthy people are paying in the top tax bracket. If you can generate your income through a corporate vehicle or a trust, you don't pay that.

That's why something that no one really commented on with the Productivity Commission report on the cash flow tax was they're going to bring the small business rate down to 20%. So all of a sudden the gap between 47% and what you can get if you're generating your income through a corporate vehicle, you're almost getting a 50% discount. Now, this is a real problem. The arbitrage opportunity there, it's driving a lot of the planning activity that exists in our system, and it's undermining the progressivity of the personal income tax. It's sort of a broadening the base type of argument, but it's really not an easy one to tackle, but I think it needs to be addressed.

Jenny Wong:
Thank you. Please join me in thanking David Bradbury, Paul Tilley, and Dale Pinto.

Chris Hatzis:
We hope you enjoyed listening to David Bradbury — partner at KPMG, former federal minister and assistant Treasurer, and former deputy director of the OECD's Centre for Tax Policy and Administration — and Paul Tilley, former economic advisor to Treasury and the Department of Prime Minister and Cabinet.

Their discussion with Jenny Wong, CPA Australia’s Tax Lead, and Dale Pinto, Global President and Chair of CPA Australia, was recorded at CPA Australia’s inaugural Tax Forum in August 2025.

And don’t forget — part one of this special With Interest episode is also available now. Just click the link in the show notes.

Until next time — thanks for listening.

Garreth Handley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance business and accounting news.

To find out more about our other podcasts and CPA Australia, check the show notes for this episode, and we hope you can join us again for another episode of With Interest.