Mixed fortunes

Mixed Fortunes by Paul Tilley delves into our past successes – which are few and far between – and failures in the process of tax policymaking to understand what lessons can be garnered for future tax reform.

Critically, tax reform is not simply ‘tinkering’ we often see debated about managing bracket creep, changes to the total level of taxation or the provision of tax breaks. Tilley looks to genuine reform and the underpinning review process.

Paul Tilley is a Visiting Fellow at the Australian National University’s Tax and Transfer Policy Institute and Senior Fellow at the Melbourne Law School, where he teaches tax policy. His background reveals appropriate credentials for examining tax reform in Australia spanning over thirty years of economic policy advisory.

In Mixed Fortunes, Tilley offers a useful and complete history of Australia’s key historical developments relevant to taxation; as well as, critically, a breakdown of relevant tax reviews in order to discern factors for success.

With extensive experience on hand, Tilley explores the range of reviews flowing between fully external to fully internal, distinguishing those approaches that are “foundational” in articulating and establishing a case for reform (even if said reviews do not result in such), compared with “determinative” reviews that seek to implement reform previously established at a time that makes use of political and fiscal opportunities.

Tilley concludes that foundational reviews offer a particular advantage for determinative reviews to enact change, although the nature of the political and fiscal climate of the current century is contributing to a lack of tax reform. Unfortunately, as he further reflects, current processes appear to be focusing more on winners and losers in the short term.

He goes on to explore how reviews ought to be playing a valuable role and key design features therein. When fit for purpose, reviews become valuable tools for future governments to rely on in the reform process. Foundational review provides the government a backbone to establish a case for tax reform, where such can be contested and politically fraught. In reflecting on this framing, we can turn our attention to the recent scandals and consequential reform occurring in the regulation of tax practitioners.

Such a more niche context of reform offers further insights into the application of Tilley’s interpretation of the review process. Tax agent services and tax practitioners are governed by the Tax Practitioners Board (TPB) and the Tax Agents Services Act (TASA). Naturally, along with tax evasion and aggressiveness, there are well-established concerns over egregious tax practitioners.

Before high profile breaches brought into question the tax profession in recent years, an independent review led by Keith James set out numerous recommendations to reform tax agent services in 2019. The government was generally supportive of many such recommendations. Moreover, research I have been involved with examining tax practitioners’ perspectives on select recommendations indicated general agreement (although numerous caveats were identified).

When the profession experienced high profile breaches, it appeared to have sped up the timeline for government action on the recommended reforms. Several tranches of reform have been progressively enacted following fairly short consultation periods. Here, we can reflect on Tilley’s lessons learned by timing and opportunities arising out of crises. A single moment or event, a single occurrence can result in a core trigger for significant reform.

Notably, the tranches generally align with recommendations found in that foundational review from 2019. One example is the recommendation now enacted that gives power to the relevant Minister to make determinations to supplement the TASA code of conduct. Research I have co-led indicated that tax practitioners saw the likelihood of the Minister tapping into this power as low. Something that would rarely be used, with issues pertaining to politics and bias identified.

It was recognised, however, that the power would enable agility and timeliness against egregious behaviour. Despite this, as soon as the reforms were enacted, the Minister immediately registered a determination to strengthen tax agent obligations. This was unsurprisingly controversial and is one of the many aspects of reform following the initial independent review and the crisis of trust the tax profession is facing following high-profile breaches.

Following Tilley’s interpretation, we can frame the James review as having enabled the government of the day to lean on expert opinion already established, and with a fast-paced consultation process, was able to succeed in enacting reform that was particularly contentious. The foundation review, along with the crisis of trust impacting the tax profession, enabled swift action at a critical juncture.

There is no doubt, as Tilley articulates, the power having commissioned reviews yields for future governments. There is a need to look beyond the short term, the piecemeal approach. This creates, naturally, the challenge of understanding the purpose and lifecycle of the review process whilst also managing the “winners and losers” and being ready for action when the time is right.

“Successes” include the 1942 income tax unification, the 1985 introduction of fringe benefits tax (FBT) and capital gains tax (CGT) , as well as the introduction of the goods and services tax (GST). Mixed Fortunes tells a compelling story of foundational reviews being necessary but not sufficient in themselves to enact genuine reform.

Of concern is how Tilley reflects on the potentially long timeframe between foundational reviews and reform following suite. Tilley highlights this with the Henry review landing in 2009, we are seeing now calls for the next foundational review and a raft of recommendations yet to materialise. At the same time, there are increasing calls for new reviews to occur, particularly in response to concerns around intergenerational equity.

Notably, it appeared that the reforms in terms of tax agent services and tax practitioners occurred in a much shorter timeframe. However, we can delve deeper to explore that the independent review followed, for example, concerns raised in the Black Economy Taskforce Final Report released in 2017. Ultimately, like all things, there is a need for continuous monitoring and improvements.

Not only do we need to turn to the intergenerational equity issues, the timelines for such foundational reviews to lead to action need to be reflected upon. Tilley contemplates here the decades from foundational and determinative, to reform.

With this in mind (and aligned with the gig economy and intergenerational context), are the challenges in the reform process arising from the digitalisation of the economy and AI advancements? To what extent will we face the question of how long can we wait between foundation and action, and still yield relevant reform to a digitalised economy?

Already flagged are the increasingly piecemeal changes often making an appearance, and the lack of political capital to take action in this century. We cannot forget that today’s society is certainly not what it was in 2009. No doubt this strengthens Tilley’s argument for the need for determinative reforms to follow up the foundational when the time is right and when the government has the capacity to make change.

These moments arguably need to occur swiftly. We need to ensure reform meets contemporary needs that are changing at an increasing rate with technological advancements. Emerging technology raises particularly interesting questions over not only what we tax, but also how we tax.

Overall, Mixed Fortunes provides a robust analysis of the reform process in Australia and presents compelling arguments around the timing and nature of success, including the necessity of foundational reviews, and seizing the political and fiscal opportunities. This book provides insightful contributions to navigating and understanding tax policy.

This review of Paul Tilley’s Mixed Fortunes: A History of Tax Reform in Australia. (Melbourne University Press, 2024) was published by the Australian Institute of International Affairs.