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Don’t confuse tax change for tax reform, government told

By Jessica Penny
5 minute read

As the Federal Budget approaches, The Tax Institute has urged the government not to confuse tax changes for tax reform. 

The Tax Institute has praised the International Monetary Fund (IMF) for urging the government to explore avenues of responsible tax reform in its recent assessment of the Australian economy.

“We are delighted to see that the IMF’s findings echo those made in our own Case for Change report in 2021,” Scott Treatt, the institute’s head of tax policy and advocacy, said in a statement late last week.

“It not only reinforces the need for holistic and considered tax reform in Australia but shows that tax experts are aligned in seeing a way forward to a better system,” Mr Treatt noted.


Namely, the IMF stated in its appraisal that “implementing comprehensive tax reforms and improving efficiency in expenditure programs will pave the road for a credible consolidation path over the medium term.”

Expounding on this, Mr Treatt emphasised the important distinction between tax changes and outright tax reform. 

“Amendments to our tax laws to improve its integrity is a part of responsible system maintenance, but it is not reform,” he said.

“Tax reform requires a vision, a holistic view of how a series of changes will achieve long-term objectives, not two or three changes to achieve short-term goals.” 

Moreover, in its assessment, the IMF underlined a review of existing, large spending programs and improvements to expenditure efficiency as integral to medium-term fiscal consolidation.

“At the same time, there are opportunities to make the tax system more efficient and equitable, rebalancing it from currently high direct to indirect taxes, and raise sufficient revenues to fund the government programs,” the body said.

Additionally, the IMF suggested the government should direct windfall revenue gains to budget repair, with a view to creating additional fiscal buffers to address future shocks.

Commenting on the IMF’s bold plans for tax reform, Treasurer Jim Chalmers offered his take on what the body was attempting to relay. 

“The point that the IMF is making is that when we’ve got these pressures on the budget … we need to make sure that we’ve got the tax system that can sustain the funding that we want to see in our areas of national priority,” the Treasurer said.

“That’s the government’s view as well, and that’s why we began in the October Budget with multinational tax reform — we’ve always seen that or for some time, we’ve seen that as the best place to start, in addition to some measures on compliance,” the Treasurer said, adding that if there are avenues for responsible tax reform into the future then those opportunities “should be explored”.

But, in his response to Mr Chalmers’ assessment of the IMF review, Mr Treatt said “our politicians can no longer turn a blind eye to fundamental reform of our tax system”. 

“It’s time to have a bipartisan approach to reviewing our tax system in the best interests of every Australian, rather than playing politics with our lives and our futures,” he said.

“We are hopeful that the government will take the Federal Budget 2023–24 as an opportunity to look seriously at the tax reform options that have now been presented by a number of independent, expert sources. They have the opportunity to commit to undertaking a review to establish a vision and a roadmap towards real, meaningful reform,” Mr Treatt concluded. 

IMF takes aim at Stage 3 tax cuts

The IMF also cautioned the government that its plans to proceed with the $254 billion Stage 3 income tax cuts could hinder the budget. 

Namely, the body warned of the damages to revenue at a time when a budget repair is key.

Commenting on the IMF’s advice on this particular topic, the deputy director of the Australia Institute labelled the Stage 3 cuts as “a bad economic idea” when they were first introduced and an even worse idea in this inflationary economy. 

The think tank’s Ebony Bennett assessed in an opinion piece that unfortunately for the government, the political and economic costs of the Stage 3 tax cuts have risen with inflation.

“Prior to the federal election, Labor made a poor economic decision to avoid making a politically difficult one. And now, after the election, the Labor government has the choice of proceeding with Stage 3 tax cuts for the wealthy or spending a quarter of a trillion dollars targeted at helping people who really need it. Pretty straightforward really,” she concluded.