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House of Assembly - Fifty-Second Parliament, Second Session (52-2)
2013-11-27 Daily Xml
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ECONOMIC AND FINANCE COMMITTEE: SOUTH AUSTRALIAN TAXATION SYSTEM

The Hon. L.R. BREUER (Giles) (12:30): I move:

That the 83rd report of the committee, entitled South Australian Taxation System, be noted.

On 20 September 2012, the Economic and Finance Committee resolved to inquire into and report on the South Australian taxation system. The inquiry arose from a motion put forward by the member for Davenport. The committee resolved to adopt a broad term of reference, including both state and local government taxes and levies, enabling consideration of and providing all South Australians the opportunity to discuss every aspect of the state's taxation system.

The terms of reference for this inquiry for the committee to investigate and report on were: the fairness of the tax system; the impact of the tax system on the cost of living in South Australia; the impact of the tax system on the cost of business in South Australia; the requirement for revenue neutrality of any proposed tax reform; the compliance and administrative cost to both taxpayers and the state and local governments in generating tax revenue; the sustainability of state and local taxes in light of long-term demographic, social, environmental, economic and budgetary challenges faced by the state and local governments; and any other related matters.

A comprehensive review of the South Australian taxation system has not been performed in recent history. Therefore, the inquiry represented a unique opportunity for South Australians to engage in meaningful debate on the state's taxation system. The inquiry follows the commonwealth government's Australia's Future Tax System Review, otherwise referred to as the Henry review, released in May 2010, which provides a framework for taxation in the 21st century and makes recommendations on the commonwealth, state, territory and local government taxation systems.

On behalf of the committee, I acknowledge and thank the many organisations and individuals who presented evidence to the inquiry both in writing and by attending hearings. The inquiry received 36 written submissions from a variety of interested local and national stakeholders, including businesses, industry and community groups, and individuals, demonstrating the strong interest that exists in the community for review of the state's taxation system. Throughout the inquiry the committee invited 24 witnesses to attend hearings and present evidence.

I would also like to acknowledge and thank the other members of the committee—the members for Colton, Torrens, Ramsey, Davenport, Goyder and Flinders—for their contribution to the inquiry. It was a long process. I also thank the committee staff for their ongoing support, particularly Susie Barber, who has taken over from Lisa Baxter, who went off on maternity leave earlier in the year. Susie Barber has taken over and run our committee extremely well.

I do want to pay special tribute to Simon Altus, our research officer, who was brought here from the Attorney-General's Department. He has done a brilliant job of putting this report together. He has been able to interpret information and write the report for us. We are very much indebted to him. For a young man, I think of 25 years, he has done quite an amazing job. The other day, when we had the Auditor-General there, I said perhaps one day he would be sitting in that seat because I think he has got some real potential. So, thank you to Simon and thank you to Susie.

From the outset of the inquiry, the committee recognised that the changes to taxation settings or systems are difficult and that reform needs to occur in a phased, structured, transitional manner over a considerable period of time. Nevertheless, the process should not be delayed. Throughout the inquiry, witnesses emphasised the challenge that they faced in trying to cost appropriate tax reform options. It was commonly understood that witnesses experienced a lack of internal resources coupled with limited access to Treasury data, and that reduces their ability to perform modelling off proposed tax reform options.

As a result, the committee took the opportunity to request Treasury to perform and provide modelling for a number of reform scenarios. This helped inform some industry groups on the true cost and nature of their proposed reforms and in some cases lead them to reconsider their initial suggestions. This highlighted to the committee the importance of the availability of modelling in developing appropriate and informed reform options.

Unfortunately, not all modelling was able to be provided in time for tabling the report, as officers within the Department of Treasury and Finance responsible for performing this modelling are currently engaged with the 2013-14 Mid-Year Budget Review. Therefore, the committee resolved to table an interim report, which I am doing today, and will table a final report in early 2014 upon the committee receiving the remaining modelling. I would like to acknowledge and thank the Treasurer and the Department of Treasury and Finance for their assistance through this inquiry.

The committee received evidence from witnesses that reflected a range of community views and raised issues on different aspects of the South Australian taxation system. Some issues were identified as being unique to the state, while others were noted as also existing in other jurisdictions. Common themes and issues brought to the committee's attention included the need for the state to transition to more efficient and stable sources of taxation revenue, the importance of equity and fairness in the tax system, South Australia's perceived unfavourable tax settings compared with other jurisdictions, and the importance of community consultation and engaging stakeholders in tax reform to ensure concepts are understood and accepted by the broader community.

The committee heard from the Under Treasurer that the commonwealth government has indicated it favours states independently pursuing tax reform through increased use of their own efficient tax bases. While the commonwealth indicated the opportunity for national reform is limited in the current fiscal environment, it is important that state and territory governments act independently to review their existing tax bases.

The committee notes that the commonwealth government is intending to produce a white paper on tax reform, which has potential to influence state taxation matters. The committee heard that tax reform cannot be viewed in isolation without considering the level of services being demanded by the community and the government's ability to fund that level of tax service provision. The committee heard that there are likely to be continued pressures on the state budget to fund a broad range of services and infrastructure demanded by the community, leading to pressures on government expenditure going forward. This will require the state to increasingly rely on stable taxation revenue sources.

Industry groups explained to the committee that South Australia is a high taxing business state compared to other jurisdictions. The committee heard that the South Australian tax system is an integral part of the state's business climate and that South Australia should have the most competitive and efficient business tax system of all jurisdictions. The committee heard that a low tax environment is vital for South Australia's businesses to remain competitive, undertake investments, provide employment opportunities and facilitate a higher standard of living.

It was emphasised to the committee that in appealing tax disputes, including smaller matters, the Supreme Court process is too costly. The committee heard that this effectively makes a tax dispute incontestable for many taxpayers, including individuals, and is unfair, as an alternative route should exist to be able to economically question a contested decision.

The committee heard recommendations for the recently established South Australian Administrative and Civil Tribunal to be given jurisdiction to hear state taxation matters. The committee was further informed that the use of alternative dispute resolution processes in similar tribunals in other jurisdictions has resulted in a significant proportion of matters being resolved by agreement without the need for a hearing.

The committee considers that its report provides a useful starting point for the government to consider improvement in the fairness and efficiency of the current system and for the community to engage in further discussion on the future of the state's taxation system. The committee also acknowledges structural reform is a long-term process and views this report as a foundation document to guide more detailed review on implementing tax reform in South Australia.

Our committee recommends the continuation of its inquiry into South Australia's taxation system to further examine issues highlighted in its report. The committee considers it appropriate that this process is continued by the next Economic and Finance Committee under the 53rd parliament. In performing further review, the committee notes the importance of Treasury involvement and modelling and community consultation in developing appropriate reform options.

In closing, while the inquiry does not offer a single path to a fairer and more efficient tax system, it highlights a range of key issues and reform opportunities for consideration by government and the South Australian community, providing a platform for further discussion and debate. I recommend the report.

The Hon. I.F. EVANS (Davenport) (12:40): I rise to speak on the noting of the Economic and Finance Committee's report into the review of the state tax system. This was the result of an opposition motion that I moved in regard to this matter. It was borne out of frustration. I had moved a previous motion on two occasions to have the land tax system reviewed and the government used its numbers to vote down those two motions, so I was pleased when the government accepted a broader motion to look at the taxes and levies that exist in South Australia.

As the committee chair has done, I thank the staff—Susie Barber, Simon Altus and Lisa Baxter—for their excellent work. I have to say that in my 20 years in this place, I think this has been one of the more interesting reviews and inquiries that I have been involved in. The quality and detail of the submissions, and the genuine interest of the witnesses to try to provide information to the committee about various reforms on all types of tax and rates was excellent. Issues were raised by the witnesses in their submissions and evidence that were a surprise to all members of the committee about how various rates and taxes work and their implications. I think I would be fair in saying that all members of the committee found this inquiry very interesting.

It is difficult for a parliamentary committee without direct access to Treasury to make recommendations in regard to tax reform because the committee itself cannot model the exact implication of the tax reforms, but I do thank the Treasurer and Treasury officers for responding to the requests the committee made in regard to certain tax modelling that, in essence, came from various industry associations saying, 'Why can't the state tax system be modelled in this way?'

I thank the government members on the committee for supporting the request of Treasury to model certain requests; I thank the Treasurer and Treasury for modelling it. A series of modelling is yet to come back from Treasury but in the interests of providing the parliament and the broader public the information we have so far, this interim report is being tabled this week. We hope to get the other modelling back from Treasury between now and the end of December so that then the committee can further consider that modelling. We are still waiting for some answers back from the Department of Further Education, Employment, Science and Technology in regard to apprenticeship numbers and apprenticeship payroll exemptions, if I recall.

If members read the report, they will find that there was a pretty consistent message from the industry associations that they believe that the South Australian taxation system is too high, that the cost of taxation in South Australia is too high. That was a pretty consistent message from the various industry groups. Once you get away from that broad message, each industry group raised very specific measures that related to their specific industry about how tax might be applied more fairly or at a lower rate, or indeed not at all.

The difference between states was highlighted by a number of industries and a number of matters were unknown to committee members when industry groups raised them. The committee members found those matters quite surprising. For instance, the report looks at the issue of payroll tax on financial counsellors. There was an issue raised on that by their national policy representative who came over from Sydney.

As it turns out that matter has now flared up in Victoria, and it looks like it might flare up in New South Wales, where financial counsellors who are required by federal law to put their cash flow through a principal adviser are now being threatened with payroll tax charges going back five years. Their argument is that, as they are required by federal law to put their cash flow through a principal agent, they have no choice. It is not actually an employment arrangement as such, but a requirement by law and, therefore, they should not be required to pay payroll tax.

Treasury here in South Australia responded by saying, 'Well, at this point there is no intention to charge those who have genuine business operations payroll tax in those circumstances.' The issue that comes from the financial advisory group is, of course, that now that New South Wales, Victoria, Tasmania and South Australia have harmonised payroll tax legislation, if Victorian revenue offices are successful in their court case against the financial services industry, then it may well flow through to other state tax revenue offices.

I think it is fair to say that there needs to be more work done in this area. The committee has recommended that this term of reference continue under the next parliament because a whole range of issues were raised that the committee simply was not going to have time to resolve given an election in March and the parliament finishing this week. The committee has recommended that this term of reference essentially continue but that is a matter for a future parliament and a future committee.

Again, I just want to thank the staff. I want to thank the members of the committee. I think this inquiry was conducted excellently and was well chaired by the member for Giles. I think the committee really did approach this in a bipartisan manner and in good faith, trying to really get to the bottom of some of the issues to do with the state taxation system.

What is clear is that, in a whole range of tax areas, South Australia does charge a higher tax burden on South Australian businesses, and you only have to look at things like land title fees to see how other charges also impact on South Australian business. Thanks to the members of the committee and I recommend that those members who have an interest in tax matters read this document and the submissions that back it up. I think it is one of the most informative pieces of work done by the committee on tax for a long time.

Motion carried.

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