Complexity

A sketch in five slides

June 2015

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How did it get so complex?

In the 1950s Australia had a tax system made up of around 1080 pages of tax law.

Since then, Governments have identified gaps, addressed omissions, and attempted to adapt the tax system to changes in business and society.

Our tax system is now a complex patchwork of rules.

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Layer on layer of complexity

As the world has become more complex, so has Australian tax law.

We now have more than 14,000 pages of tax law dealing with countless specific scenarios.

This has resulted from trying to deliver different policy outcomes, for different taxpayers, in different situations. Having fewer policies that apply to all taxpayers, rather than a range of different policies for different taxpayers, would help to reduce complexity.

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• More complexity means higher compliance costs; that is, the time and money the community spends complying with tax obligations.

• The most recent estimate places the compliance costs associated with taxes the ATO administers in the order of $40 billion each year.1

• Small business in particular bears the burden of compliance costs associated with a complex system.

The knock-on effect of complexity

1. as reported in Australian Government, Re:think Tax Discussion Paper March 2015 (2015); see also Australian Government, The Treasury, Stocktake of Regulation Final Report March 2015 (2015).

• 12.8 million Australians lodged personal tax returns.

• 73.5% of these used a tax agent or accountant.

• The average cost of managing tax affairs was $370 per person - a total cost of more than $3 billion.

• 8.3 million had “simple tax affairs.”1

• But 5.4 million of these still used a tax agent or accountant.

1 Simple tax affairs - includes anyone without any: net rental income, capital gains, business income, trust income or income from certain overseas entities.

Individual impact: a 2012-13 snapshot

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And for business, Australian tax, is not as easy as…

Ease of paying taxes2015 World Bank/PWC Rank

Hong Kong 4

Singapore 5

Canada 9

Denmark 12

Norway 15

United Kingdom 16

South Africa 19

Finland 21

New Zealand 22

Malta 26

Chile 29

Malaysia 32

Sweden 35

Australia 39

United States 47

World Bank Group & PricewaterhouseCoopers, Paying Taxes 2015 (2015) pp 152-154.