Tax reform insights from a global policy expert

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

Jenny Wong:
Welcome to CPA Australia's With Interest Podcast. I'm Jenny Wong, and today we're diving into one of the most pressing policy challenges facing Australia, tax reform in the lead up to the 2026 federal budget. With productivity slowing, investment lagging, and the tax mix under increasing strain, the question isn't whether reform is needed. It's how we make progress in a system that often feels gridlocked.

Joining me today is Viva Hammer, a global tax expert who played a key role in designing the United States Tax Cuts and Jobs Act of 2017, and now brings that international perspective back to Australia.

Viva has been a strong advocate for pursuing something better, even if it's not perfect. And today we'll explore what that philosophy means for Australia's tax system, our competitiveness, and the choices ahead. Viva, welcome to With Interest.

Viva Hammer:
Thank you so much for inviting me, Jenny.

Jenny Wong:
You've had a fascinating career spanning senior roles in US tax policy, including your work on the Tax Cuts and Jobs Act of 2017, and now you're back in Australia bringing that global perspective. Before we dive into tax reform, could you tell us a bit about your background?

Viva Hammer:
Sure. That's the most exciting thing. That's the real story. So I graduated from Economics Law at university, and two days after finishing law school, I took a plane to the Big Apple. That's New York City, because I wanted to have an adventure.

And so I couch-surfed for months and months. I did the New York Bar. And then when I was admitted to the bar, I started working at one of the global tax groups. It was the first place that had desks from all over the world. So I joined as part of the Australian Desk.

But within a very short period of time, I was doing only US tax work. And it was... they threw me something called earnings stripping. I didn't even know what earnings were or strippings, but it sounded fun. And I opened the book, had never done a tax course before, but I knew how to read.

And I started reading it, and I started arguing with them about what it could mean and what it didn't mean. And it was new. It was... The earning stripping was a new provision. And so anybody had an idea about what it could mean. And I discovered what deductions were and what strippings were and all that kind of thing.

So I worked in New York for 10 years, and then I was invited to join the Office of Tax Policy in the US Treasury Department in Washington, which was the crown and the glory of the tax system.

And so, of course, I took my family because I'd stopped couch-surfing by then. And we got a house in the suburbs, and I was in the Office of Tax Policy for a number of years. And then I became a partner at a big law firm, and then I became a partner in one of the Big Four firms.

And after that, they asked me to come back to the government, and do work on the Joint Committee on Taxation in the US Congress. So it's a different part of the government. The treasury is part of the administration.

The US Congress is an independent body, so they have their own staff. And the Joint Committee on Taxation is a nonpartisan body that advises both the House and the Senate. And I was incredibly fortunate to be there during the major reform, the Tax Cuts and Jobs Act, and I worked on the international provisions.

I also work on financial institutions and products, derivatives, complex financial transactions. So I was there at a really good time for somebody interested in policy. And after a while, my daughter said to me, "What are you waiting for? A funeral?"

And I came back to take care of my parents, and that's how I ended up in Australia. But my work is still in the US and in Europe. I do global work at a high level of policy and political thoughts and policy thoughts. That's what I do for my work.

Jenny Wong:
That's certainly a fascinating career. You were closely involved in the design and the rollout of the Tax Cuts and Jobs Act of 2017, and one of the most significant US tax overhauls in recent history.

Looking back, what were the key political or design decisions that made the reform achievable? And which of those lessons, if any, do you think are transferable to the Australian environment, given the current politics and fiscal environment as well?

Viva Hammer:
That's an important question and decision for the political system. In general, people don't do things unless they're desperate. And people, including politicians, don't do things unless it's really broken. So before the 2017 reform, there were really broken parts of that system, particularly the US international tax system.

There was a strong incentive not to invest in the US, rather to invest overseas. There were all kinds of other things that were broken, and the president had promised a very large tax cut.

So the large tax cut was the main event, and in a part of that, part of it to pay for it was international tax reform. So the answer is there has to be a real drive for reform, and there has to be a plan, someone's, who have a plan about how it's going to get done.

One of the problems with democracy, and maybe it's true of all government systems, but certainly democracy is that everyone wants to be the winner. Wherever there are chips falling, everyone has to be on the top, everyone has to be above average.

And so the benefit of having a tax cut is that everyone benefits. And so that's a good incentive to get things done. And so that's how it happened over there. So there has to be a carrot. There can be sticks as well, but there has to be a carrot.

So that's what I would say. You have to have people who are very motivated, and they have something to offer the population that they can go to the polls and say, "This is what we're going to do, and this is how you're going to benefit."

Jenny Wong:
So drawing on your experience with US tax policy and international comparisons, how would you characterise Australia's tax system today? And are we broadly competitive, or are we at risk at falling behind?

Viva Hammer:
Australia has the incredible benefit of an extremely rich country, rich in every way, beautiful country with lots of minerals, lots of other things that are worth selling. And so lots of things that bring, draw people and draw investment. On the other hand, businesses and people are rational at some level, and they will only come and invest if there's more profit than there are other things.

So if there's more revenue than there is expense. So taxes is just part of the profit-making decision. It's not anything more than that. It's not more romantic than that. And Australia is very attractive as long as it can offer people, because people are behind businesses.

As we know, people talk about corporate tax rates. It's not really corporate tax rates. It's individuals bearing those taxes. Every time there's a tax, some individual is carrying the tax. And so if we think about what makes people invest in Australia, is its beauty, but also the fact that it delivers really good returns. And taxes is part of that. And one of the issues is not so much the tax rate.

You can have a pretty high rate, but you have to do it in a transparent way so people actually know when they invest what they're going to be paying in tax, but also what the administration is going to cost. So, the forms they have to fill in, are there going to be uncertainties about the meaning of the laws?

Are they going to have to do... have a lot of battling with the administration or with the lawmakers about what these things mean? Are they going to have to go to courts? All those things make it more complicated to make a decision about to... about investing. And so the thing to keep in mind is the problem isn't the tax rate or even the laws. The problem is always there's the certainty around them.

Are we telling people what the laws are going to be? Can they predict what they're going to be? And are they going to be certain for some period of time over which the investment horizon is being considered? So I would say that those are the critical things. Yes, you can have high tax rates as long as people know what they're going to be.

Jenny Wong:
At the Allegra Spender Tax Roundtable last year, where I heard you first speak, you advocated for striving for something better even if it's not perfect. In a political climate where both sides of politics struggle to embrace holistic tax reform, what would a better but politically acceptable tax package look like to you?

Viva Hammer:
The idea of perfection being something to be put aside is sometimes hard to do for all of us. We're all high-achieving people, but when it comes to taxes, it's good to keep in mind what's possible and to also keep in mind what the priorities are. Now, one of the issues with making a better system is to make it simpler.

So when I was talking to you about before about more forms to fill in, more uncertainty, court cases, things like that. But the irony is that there isn't really a push from any circle of people or political to make something simple. I mean, imagine putting that on your political banner.

As soon as you mention the word taxes, people fall asleep. So they might want to hear about a tax cut. That sounds good, but tax simplification is kind of hard to sell. There's a novelist called David Foster Wallace, and he wrote a book called Infinite Jest, and it was a bestseller.

And then he decided he was going to write a book about the IRS. Can you imagine? So it's called The Pale King, and what he said in that book is that the wonderful thing about taxes that it's so boring that nobody pays attention to it, and therefore, the people who do care about it can do anything that they want. And so that's the danger of taxes, is that no one's really paying attention except for geeks like you and me.

And as a result, there's an accumulation of all kinds of dross and old rules and just years and years of accretion like an archaeological dig, and that, in the end, it just ends up being too complicated, and that's what makes things troublesome for businesses trying to make decisions about investing. And frankly, individuals, too. They want certainty, and they want to understand exactly what's going on, and the enormous complexity makes that difficult. So we have to overcome the Wallace problem of boredom and get excited about tax. So that's what I do.

Jenny Wong:
You've argued that businesses value predictability more than low tax rates. If the headline corporate rate remains at 30%, what specific changes would provide the certainty international investors are currently missing?

Viva Hammer:
So, because I'm a student of Wallace, I'm not going to go into the geeky part about things, but there needs to be a list of major headline issues that don't necessarily cut the tax burden as a financial matter, but cut the tax burden as a practical matter.

So I'm all about the practical stuff. How many forms, how much uncertainty, how many reserves are you going to have to do? So I would say, first of all, because I started my tax career with stripping, the interest deduction is a number one source of complexity.

Let's start with that. Let's look at the interest deduction and decide if we want to have it or not. If we don't want to have any interest deduction, that's fine. There's no interest deduction for anybody. That's a fair rule.

That's a rule that we can understand. But if there's sometimes interest deduction and sometimes not, that makes things really, really hard to work on. And also, when there's... we're not sure if we're getting an interest deduction or not, that's another issue.

So I think that's one example in the system here that's incredibly complicated is the interest deductibility rules. So if we're going to go into the weeds on that, I would stay. But I think in general, there's probably a lot of different things we could talk about, a lot of different kinds of rules that could be cleaned out.

Like we clear out the brush for wildfires, I think we need to clear out the brush from the tax code as well, and looking at ways of making it. Yes, you can deny deductions, but let's make it clear and let's make it transparent.

Jenny Wong:
You've suggested the GST is a more effective tool than corporate tax because it's a border adjustable and aligns with sustainability goals. Could you explain how our consumption tax can be used to reflect the true environmental costs of products better than our current settings?

Viva Hammer:
So the GST was an enormous innovation in the Australian tax system a long time ago, probably at the beginning of both your and my careers, and it took a very large political toll, but it was very effective. In other words, it paid for things that Australians really want. It's pretty transparent, and it works very well. The problem is that it hasn't been changed significantly since it was introduced, and it needs to be because Australia has one of the lowest GST rates in the OECD.

Other countries rely on it much more heavily than we do and very effectively. And the other thing is that it's only about 50% effective in Australia. In other words, it only taxes about 50% of the things in ways that it should, relative to the perfect 100% rate. So one of the compromises that happened when they brought it in is there's 50% effectiveness.

So we probably need an increase in a rate, and we need a broadening of the base. The issue in Australia, of course, is the states versus the commonwealth, and that's what gets involved with the GST. The GST is a compromise between the states and the commonwealth, and you have to get everyone to agree, and you know how hard that is to happen. So it was part of the architecture to make it hard to change, but I think that we need to be working on that further.

The reason is because for two reasons. First of all, the income tax is supposed to be more equitable, but in fact, it's harder to adjust than the GST from the point of view of what exactly that hits. So, for example, the lower-income people can be compensated for a increase in GST, but more importantly, that consumption is a major problem for sustainability, environmental, and we can make it more costly to spend on the future, to spend on the environment, using the GST.

The other benefit of the GST is that it doesn't tax savings. So if we want to improve our savings performance because we are getting older and we need to save more, then the GST is a much more effective way to do that than the income tax. Income tax taxes savings and consumption. The consumption tax only taxes consumption. And so if we want to encourage savings, the GST is a better way to do it.

Jenny Wong:
Recent research suggests GST and personal income tax are now equally damaging to prosperity. Does this change your view on the better, not perfect, trade-off of increasing the GST to lower other taxes?

Viva Hammer:
So I mean, we have a bit of an elephant in the room here, which is that we're ageing. We're ageing as a society, and birth rates are extremely low, and they're falling. And so we're going to have a diminished size and effectiveness of the labour market.

What are we going to do about that? How are we going to encourage people to stay in the labour market? Obviously, by encouraging them to working, earning... taking home their pay, that kind of a thing? And how are we going to encourage people to have children that they want?

So, stay in the labour market later in their lifetimes and have children earlier in their lifetimes. So, of course, not interfering with people's private decisions, and the same time, and letting them do the things that they want to do.

The tax system is very important in all of those factors. So the balance between a consumption tax and income tax and savings for retirement and for childbearing are all implicated in the tax system, and we need to think about those very carefully.

Jenny Wong:
You made the point that companies don't ultimately bear tax, individuals do. If we accept this premise, how should it fundamentally change the way the community views the fairness of corporate tax versus consumption and land taxes?

Viva Hammer:
These are big political bug bears. One of the fabulous statistics you can say about Australia is 10 companies pay 30% of the corporate tax. That's a crazy, very concentrated kind of corporate tax. Of course, as you say, absolutely correctly, individuals pay tax. Companies are just, call them, decorations.

They're the way we organise business, but they're not ultimately the payers of the tax. Individuals pay tax, whether it's through their pension funds or directly through dividends, which in Australia, there's this special treatment of dividends, but not everywhere.

So all of that stuff comes together when we think about how we're going to support individuals in Australia to make the best lives that they can. And the corporate, the negativity that's associated with corporates, particularly those that hire a lot of people, in other words, they give us jobs, all of that has to be taken into account.

If we make it very difficult for people to run businesses because the tax burden is very high, then they won't be hiring people. That's a problem. So when I say that the individuals bear the tax, both by actually paying the tax, but also in the ability to get jobs and get good jobs, which is what businesses offer, all activity takes place outside the government in the form of... some form, either nonprofit business or profit-making business.

Jenny Wong:
If you had to pick one better, not perfect reform to implement in the next 12 months, something that avoids a big bang package, but starts the momentum, what would it be?

Viva Hammer:
So I'm going to go right outside the conventional line here, and I'm going to talk about housing. So housing is a sacred cow in Australia. You can make a 100 million dollar profit on your house, and you still won't pay income tax on it or capital gains tax, but that's an income form of income tax. That's a bizarre outcome. It also means that individuals invest way too much of their wealth in their home because it's the only legal tax shelter.

It's not a shelter, but it is a shelter. It's a legal tax shelter. You're putting all your profits into a home, which is a place you can live, but it also means there may not be enough dispersion of your wealth to manage a fall in home prices.

So if you put all your wealth into one place, then if something goes wrong with that one place, you've got nothing else left. So there is a distortion in the markets, in the investment market and the Australian markets in general, because their homes are completely untaxed.

Now, of course, we've got transfer taxes, that kind of a thing, but that's a different animal and a very inefficient animal too. We want a recognition that if people are putting all their wealth into one asset class, then they should be taxed at least at the very high level.

So if you make a 100 million dollar profit on your home, you should be taxed on that. 70 million, you should be... At some level, you should be taxed on the gains that you make for living in this beautiful country. And I would say that that would be a beginning.

You don't have to put a million dollar profit as being taxed, but certainly a 10 million dollar profit should be. And that's a lot of money that goes into that. So it also would perhaps shave off some of the distortions that take place because everyone's putting everything that they own into their home.

We need to make sure that they're thinking about other forms of savings and that those forms of savings are also tax advantaged. So the balance between the way people think about their wealth is shifted through the tax system.

So I would say if there's one thing that we do that changes, it's taxing at the very high profits that people make on their homes so we don't have to touch the ordinary person in any way, but we could touch the very, very wealthy ones who are making a lot of money by putting their money into an asset class that really shouldn't be tax-free.

Jenny Wong:
Well, thank you so much, Viva, for sharing your experience and perspectives on what better, not perfect, tax reform could look like for Australia.

Viva Hammer:
Thank you so much for inviting me, Jenny.

Jenny Wong:
As we head towards the 2026 federal budget, it's clear that the government, business, and the accounting profession are grappling with some complex and interconnected challenges from investment certainty to intergenerational fairness and the future of our tax mix.

For more analysis, check out our upcoming federal budget live webinar on the CPA Australia YouTube channel. Subscribe to With Interest as well to stay up to date, share this episode with your colleagues and friends and the business community. Until next time, thanks for listening.

Garreth Hanley:
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.