How tax reform can transform Australia’s economic future

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

Carol Penny-Anderson:
Welcome to With Interest. Today's episode is a recording of a luncheon event and Q&A session with Allegra Spender, MP that was held at CPA Australia's Sydney office on the 4th December 2024. Allegra Spender is the federal member for Wentworth, located in Sydney's eastern suburbs, and has recently released a tax green paper, which she describes as a discussion paper that aims to promote discussion amongst the community, experts and political parties so that we can improve Australia's tax system. You can check the show notes for links to the green paper and additional resources from CPA Australia. I'll now pass you over to Chris Freeland, the CEO of CPA Australia, and the tax reform for Australia's future luncheon with Allegra Spender, MP.

Chris Freeland AM:
Before I begin, I'd like to acknowledge the traditional custodians of the land on which we meet, the Gadigal people of the Eora Nation and pay my respects to elders past, present, and emerging. Then extend respect to all Aboriginal and Torres Strait Islander peoples here today. On behalf of CPA Australia, I'm really delighted to welcome you to today's lunch. Tax Reform for Australia's Future is the topic, featuring our esteemed guest, Allegra Spender, MP.

This is a great opportunity to discuss what we at CPA Australia think is one of the most pressing issues facing Australia today, how our tax system can be reshaped to foster a more equitable, sustainable and competitive economy. CPA Australia is committed to advancing meaningful tax reform that supports individuals, businesses, and communities alike. Through our advocacy, research and member engagement, we strive to provide thought leadership that drives policy discussions like the one that we'll explore today.

It's a great privilege to have Allegra Spender join us today. As an advocate for tax reform, she brings a wealth of insight into the challenges and opportunities we face. We're here to discuss a recent tax green paper, which is a thoughtful and ambitious contribution designed to ignite discussion, debate, and generate ideas for a pathway forward in Australia's tax reform journey.

The tax green paper represents an important addition to Australia's ongoing tax reform dialogue. It's sobering to reflect the fact that nearly 20 years have passed since the landmark Australia's Future Tax System Review led by Dr. Ken Henry. Since then, while there've been no shortage of reviews and debates, significant opportunities for reform remain unrealized at both the Commonwealth and state levels.

In today's changing global environment, the need for reform is increasingly clear, but as we've seen in past efforts, effective tax reform is about more than just identifying the problems or proposing solutions. Success depends on getting the process right, building broad consensus by engaging the community, policymakers, academics, private sector and business, and other key stakeholders. This approach can ensure the tax reform is not just timely, but sustainable.

CPA Australia recently undertook research that sought to determine how tax policy development and tax reform can be improved in Australia. The research found that whilst no jurisdiction exhibits all of the features of best practice in tax reform and policy development, the best starting point was New Zealand's approach to tax policy development.

A well-resourced and transparent independent body to progress a whole-of-government approach, including federal and state governments should be established to advance reform options for the tax and transfer systems with an unconstrained terms of reference. The role of GST in Australia's aspirational tax mix is a key issue requiring an informed base in consensus between federal and state governments and the broader community.

Today we're very privileged to hear from Allegra as she shares key insights from her tax green paper. Following the presentation, we'll transition to an expert panel discussion who will unpack the ideas and explore their implications. Thank you, Allegra for joining us and for your important contribution to this critical conversation. I'll hand over to you now. Please welcome Allegra Spender.

Allegra Spender MP:
Thank you. Thank you Chris for that introduction, and I've really been looking forward to this event. I think your opening words this morning of talking about wanting an equitable, sustainable and competitive tax system I thought are absolutely on the money. It is always, however, a bit intimidating talking tax to a room full of true tax experts. So for me, this is both about sharing what I've learned but also listening to you and what you want to tell me and what I should understand from this group.

So I'd also like to start by acknowledging the land on which we meet and pay my respects to elders past and present. So why do I care about tax? In our collective imaginations, Australia is a place where people can put down roots, raise a family regardless of who their parents are, where if you work hard, whether you're a healthcare worker or a CEO, you can create a good life for you and your family, where people with great ideas can build businesses, where we leave each generation better off than the past, and where our abundant natural resources generate prosperity.

That is our country. And it is also a place where if misfortune hits, you're not alone. It is the land of the fair go. That's, I think, our conception of us. This was the Australia of my mom. She was a first generation migrant from Italy. She was a single mom. She was a person who arrived in Australia with no language, didn't complete her education, but she was able to build a successful business from the ground up through hard and determination.

But I am concerned that the Australian Dream is becoming just that, a dream. And a recent survey by Redbridge found that only 15% of Australians now believe home ownership is attainable for young people without family assistance and only a quarter are very confident their retirement will be financially secure, and then less than one in 10 believe the standard of living in Australia will be better for the next generation. I find this particularly alarming, but we've seen this play out in other countries as well.

While Australia and America are very different in many ways, I think there is one lesson that we can learn from the US that we're naive to ignore, is that in the US, the substantial proportion of the population feels like they're left behind, that their lives are not better off than they were before and they don't have hope for their kids. And there are people in this country who are feeling this and more and more Australians I think are feeling this most dramatically through the cost of living crisis.

But for me, the cost of living crisis is really just a symptom of the broader challenges of our systems, including our tax system. So today what I want to do is three things. I'm going to talk you through three of the big challenges I think we're facing as an Australian economy, connect how those challenges relate to the tax system and therefore why there are six priorities coming out of my green paper, and finally, a recipe for what I believe could be meaningful reform process in the next Parliament.

Look, I don't pretend to hold all the answers, and clearly tax reform is just part of a broader agenda that Australia needs in terms of economic reform, but I believe and I think no doubt, this audience knows, it is an important one. So let's start with the challenges. I think there are three fundamental economic challenges that Australia faces right now.

Firstly, younger generations are struggling to reach the same milestones as their parents. Secondly, the source of Australia's future economic prosperity are less certain than they have been in the past. And finally, we have to navigate what is going to be a complex and expensive energy transition. We need to do this in the most efficient and cost-effective way we can.

To start with the first issue, Australia's wealth is increasingly spread across intergenerational lines. A recent Productivity Commission report showed that although Australia has historically been a highly socially mobile country compared to the OECD, there are some troubling indicators. Between 2004 and 2016, the wealth of a household headed up by someone over the age of 65 grew by around 50% while the wealth of a household headed by someone under the age of 35 basically didn't move.

Now, I don't think Australians particularly wanted that, a situation where one part of the community is accelerating their wealth in a different way to the rest of the community, but that is a situation that we're seeing, and we're seeing that play out a lot also, particularly through housing. Sydney holds the ignominious title of being the second most expensive city for housing in the world after Hong Kong.

Home ownership ratios for younger Australians are falling across all levels of income, and the Australian Dream is increasingly accessible only to those with wealthy parents. So we're seeing back in the 1980s, about 70% of 30 to 34 year olds owned their own home or had a mortgage. Right now, it's around 50% and it's dropping. And the number of Australians relying on the bank of mom and dad has increased from 15% in 1980 to 40% today.

Unsurprisingly, younger people are feeling less secure about their futures and they're putting off life events. They are the most educated generation that we have ever had, but more than half millennials are delaying having children because of the insecurity of their financial position. And we now have a birth rate that is 1.5, which is the lowest Australia has ever had. And that, as an economist, from a demographic point of view, is really challenging.

At the same time, when the share of working age people in Australia is declining, the share of tax revenue collected from your working age incomes is at a record high and is only expected to get higher. A young family on 100,000 is paying around twice the amount of tax as a retired family on 100,000 living next door, despite the retired family more likely to have significant wealth compared to the younger family.

While Treasury is predicting budget deficits as far as the eye can see, we also have those challenges and this is an unsustainable position to be in. Previously we might've said, "Look, actually, the answer is productivity. Wages are going to grow, this is how younger people can build prosperity. And productivity is going to grow and that is how we can actually deal with our budget deficit over time." But that assumption was much easier to make 15 years ago when we had stronger productivity growth.

What we have now, and we have had for the last decade, is the lowest productivity growth in the last decade that we've had for 60 years. And Paul Krugman very famously said, "Productivity isn't everything, but in the long run, it's almost everything." And we've just, as I said, had the worst rate of productivity growth. But without this productivity growth, Australia will not boost wages because 80% of a historical rise in real wages has come from productivity.

And the other indicators for productivity are also concerning. Business investment outside the mining sector has fallen, so from a level of about 9% in the 1980s to around 4% right now and younger, more innovative firms are struggling to access capital, despite Australia having the third-largest pool of superannuation or pensions in the world.

And finally, the third problem I'd outlined, Australia is in the middle of an energy transition that requires a complete restructuring of the energy system to power the economy. If we fail to do this efficiently and cost effectively, this will not only contribute to climate crisis, but also could cause Australia to miss out in a once in century economic opportunity for us to harness our unique competitive advantage.

Emissions from generating electricity have been falling since 2012, but there has been no material reduction in sectors that produce more than two thirds of Australia's emissions. Relics of our old tax system such as fuel tax credits, which cost the budget around $8 billion a year, hold back that transition by artificially lowering the cost of fossil fuels relative to renewable alternatives.

Now, I haven't laid out these three challenges to be pessimistic. I'm by nature actually very optimistic in general, but I think the point here is to convey urgency. Each of these challenges alone represents a once in a generation challenge and we need all shoulders to the wheel. And I believe while tax reform is no silver bullet, by choosing to ignore the tax system or putting it in the political too hard basket as I think we currently are, it means that we are leaving one of those really important tools on the table and at worst, the tax system is creating the wrong incentives in terms of trying to deal with some of those challenges.

So I believe that tax reform needs to be a really important part of a broader economic reform agenda, including other difficult topics like industrial relations, but I draw attention to tax because neither of the major parties seem inclined to touch it. And I'll be honest, our political system is incapable of having serious conversations about tax.

I was a bit flabbergasted, to be honest, in the last election when basically the message from both the major parties was, don't worry, we're not going to touch it. And I think that challenge that, Chris, you outlined at the front, the last significant tax reform we had was back in 2000 or early 2001. The country, the world, the economy has changed fundamentally since then. We didn't even have iPhones. It's such a different time in terms of the economy, and the question really is, is that the best outcome?

If we could look back in time, say, "Is this the right thing to have done over the last 24 years? And if it isn't the right thing to have done, what are we going to do about it this time?" And so that's why I chose to pursue tax as an issue 18 months ago and kickstart a process of consultations, round tables and research and events just like this.

And the culmination of this research has been the release of a tax green paper, which I released in Parliament two weeks ago alongside other tax reform champions such as Ken Henry and Bob Breunig. But the paper also represents conversations with my community. I'm sure some of you are from this community as well, which is nice. At the Rose Bay ferry, at markets, on the Bondi Promenade, even yesterday or Monday when there was floods in Double Bay and I was talking to some businesses, some people came to talk to me about payroll tax.

So this is an issue that people care about and people are worried about and people in my community are starting to get organised and engaged on. So being a green paper and which you can download also from my website, the purpose of the document is not there to outline specific packages of reform. And I'll be honest, it would be naive to do that, to say, "Oh, I can singularly come up with all the reform that is required."

But the purpose of it is like the original green papers they used to release in the 1980s and 1990s, it is to put a real challenge to the community on the table, to put forward what some of the experts and community are saying and then say, "Engage with this." This is a significant issue in our economy and our country and we need to engage with this and develop answers and a dialogue around these issues.

What the green paper does do, while it's not a policy prescription, it does identify certain settings and incentives to stimulate discussion and debate, and there were six key priorities that came out for me out of the paper and the work that was done. Firstly, I believe we need to lower taxes on working Australians to allow them to get ahead. Secondly, we need to rebalance the tax settings towards home ownership.

Thirdly, we need to have a greater incentives for innovation and investment. Fourthly, we need to rebalance the tax system more broadly to ensure our tax revenue is stable for changing demographics and situations. Fifthly, we need to incentivize the transition away from fossil fuels. And finally, we need to establish an institutional process for tax reform that can better prepare us on an ongoing basis for the challenges we face in our economy.

The green paper does this on the basis of revenue neutrality. It's basically saying, "Well, we're going to keep flat the level of tax burden in the economy." But say, "How could you balance that tax burden in a way that could drive those six priorities?" People have different views on where spending would like to go. I believe ultimately, I'd love to see spending at a government level go down, but at the same time, we need to work out really how to do that from a spending side. So this is about that revenue neutrality.

So let me take each of those six points in turn. Firstly, individual taxes on labour and non-labour income. To allow younger generations to create a prosperous life for themselves, I think we need to reduce the tax on working Australians, that is income tax, for both high and low income workers. I think that fundamentally, that will make it easier for younger workers to keep more of their income and so that they can reach their milestones regardless of who their parents are.

Earned income is the one thing that is open to most Australians, again, regardless of your background, and that is why I think it really needs to be protected and the incentives around that really need to be strong. The current system forces Australians to pay the majority of their lifetime tax in their prime earning years, but that's exactly the same time that they're trying to pay down a historically large mortgage, put kids through childcare and school, and save and invest in their retirement.

It is a really hard time to be putting more and more money into the tax system. I think there's a good argument to say, "Look, we don't necessarily need to change how much tax an individual pays over their lifetime, but changing when they pay it could have a really material benefit." But lowering income tax is an expensive business. Even the stage three tax cuts alone will cost the budget more than $100 billion over the four years, therefore to lower income taxes by a non-trivial amount, you basically have to say, "Well, where could that money come from?"

And all the options here, we've covered three options in the paper, there may be other ones that you want to suggest, but I'd say that all three options have some challenges. One way and one option we outlined is to rebalance the taxes on labour income relative to other income. This means reducing tax breaks for things like capital gains and scaling back negative gearing or other investment earnings that accrue to higher income turners, where 60% of dividends outside super are paid to individuals with incomes over 180,000.

I think we also need to look at the disparate rates of tax on different saving vehicles. However, changing taxes on investment is always difficult because people alter their efforts to invest based on the tax arrangements that they apply at the time of their initial investment. They rightly expect that they shouldn't be penalised for subsequent tax pay changes, particularly knowing if those new changes would've influenced them to make different decisions.

There are good reasons to grandfather, for example, those existing investments, but at the same time, and this is probably the most sensitive and difficult part of that conversation, there's also the challenge of if you grandfather everything, then it is much harder to preserve the opportunities for younger Australians and to make a substantial difference on income tax, and in some cases, it could even preserve some wealth disparities between generations.

And so I think the transition arrangements, if we go down this route, really need to strike a balance between preserving every tax advantage and sudden tax changes that would leave people in an unsustainable position. I think this requires a lot of thought and frankly, I think this is actually where the community sense of what is fair and what is reasonable is really important and I think the community is actually probably our best guide in this space.

Secondly, in terms of what are the other options, if you're trying to really substantially lower income taxes, one will be to increase GST either in rate or scope. It's not an easy reform, least of all in a cost of living crisis, but I fundamentally believe it needs to be on the table. Other countries have done this and Australia now has the third-lowest consumption rate in the OECD.

I believe it would need to be part of a well-designed package that reduced income taxes and increased welfare payments for those who are most vulnerable in the community. The advantages of consumption tax is that it's hard to avoid, it taxes consumption rather than work, and it covers everybody so it's not just paid by working people. There are concerns. Of course, inflation today is too high and we would need to get it down before we even contemplate a GST package.

And the vulnerable spend more of their income, and so a compensation package would have to be significant and it would have to engage the states and the federals in governments in this challenge and in that redistribution. But there is a scheduled review of GST and equalisation due in 2026, which is going to be undertaken by the Productivity Commission. That might be the right time, I think in the right place to have a more complete review or as an opportunity to review GST more broadly.

The second opportunity I think I mentioned was that we need to rebalance the tax system towards home ownership. Australia has the second-highest level of wealth attached to investment properties in the OECD, only second behind Luxembourg. I've already touched on some levers previously about this, including the appropriateness of capital gains in housing and negative gearing, but I also think the abolition of stamp duty and the replacement of it with a land tax needs to be on a high priority.

When New South Wales Treasury looked at this issue, they estimated that abolishing stamp duty would increase home ownership by around 340,000 people or 6.6%. And not only is that, but it's also a deeply inefficient and inequitable tax that penalises people who move, people who get divorced. The federal government, however, would need to step in and cover the short term to medium term's shortfall in state revenue.

A third area that I also briefly touch on in the paper is around tax deductions. And again, work by the Blueprint Institute has also identified opportunities in this space. I'm sure this room would particularly have some views on the simplification and the opportunities both from an efficiency point of view, but also from a point of view of saying, "Could the simpler personal income tax system create greater opportunities for being able to lower the broader income taxes?"

I then want to move to the third issue, which is around how do we drive greater innovation and investment? Corporate tax reform, I think is part of the toolkits that could and has the ability to recharge Australia's lacklustre investment. In consultation, and I'm sure this won't be news for you, I repeatedly heard that the tax system is complex, it's inconsistent, and that is uncompetitive. And that last point may be even more central in a re-elected Trump government.

However, there were, in my consultation with the business community, different perspectives on what is the most effective way to encourage more productive investment in existing businesses. While many advocate for wholesale reduction in company tax rate of larger businesses, this will lead to a low tax on profits from sunk investments that have already been made. There is concern that this would be a very large cost in the budget and to national income relative to the additional business investment that is made.

It's still early days, but emerging evidence from the United States that analyses firm behaviour before and after the introduction of Trump's Tax Cuts and Jobs Act showed that the indirect impacts such as investment and employment had not been enough to offset the decline in revenue from the reduction in corporate tax rate. Therefore, there is a strong argument to consider more targeted concessions, such as immediate write-offs or additional deductions for new investments.

While these create a more complex tax system, they may drive greater new investment for less budgetary cost. And certainly evidence from the Tax Cuts and Jobs Act does show that the decline in the net of tax cost of domestic investment had an outsized impact on investment spending. There are also considerations at a more micro level in terms of how can we encourage investment, particularly in our small and in our young and high-growth firms?

Certainly those young and high-growth firms are responsible for a significant amount of productivity, but we still have around a third of the investment in small scale-up firms compared to the US and around half of that angel and early-stage investment as the UK. So we do have a real challenge there, and I think tax systems such as ESVCLP, VCLP thresholds, as well as more specific changes around things like RG 97 in superannuation might be some of the areas that could help drive that increase in innovation funding.

And another area that I think has certainly come up from the corporate tax environment has been around how can we reduce the cost of compliance, particularly around state definitions of payroll taxes, simplifying fringe benefit tax and using standard deductions, as I mentioned before, for personal income tax? Most of these reforms would cost tax revenue. So the question is, well, how do you pay for that?

While some in the business community suggest that you should fund corporate tax reductions through consumption tax increases, I'm not convinced, I'll be honest, that the Australian community is going to agree with that or accept that. So consequently, I think that any tax changes to drive corporate investment would have to be funded, I think, through taxes levied off corporate entities.

One that many have advocated, including during the Henry Review, is around increasing the taxes on corporates that are extracting rents, particularly rents from resources. Of course, I think it's very tricky to do this because what you don't want to do is reduce investment in these areas, but when things are going well and when investments are made, you want to make sure that Australians are receiving and sharing in as much of that benefit as possible. And there are some indicators that there are opportunities.

For instance, the Australian government only currently receives around 7 cents for every dollar in revenue earned by companies that extract oil and gas. Now, this is substantially less than we used to. I know I don't like to normally talk about tax as a percentage of revenue, but it's pretty complex in this case and I think that it's declined significantly over time, and it has declined significantly over time even though global gas prices have been much higher in the last three years than historic averages. So this does seem like an opportunity to look at.

Miners of other minerals with current prices much higher than historic averages might also be earning rents from Australian resources. A well-designed tax reform that would investigate the best way to get the benefit from Australia's share in these rents, bearing in mind, some enormous care is required in designing tax changes in this area.

And I do want to note that while tax is important, it is not the only lever that's going to drive corporate innovation and investment. There are other things around productivity investment, including IR reform, resizing our regulatory framework, and as well as ensuring that the government investments and government spending is most efficient and most effective as possible. But I do think those are outside the scope of this conversation today.

Then I wanted to talk about taxes to the incentivize the energy transition. Under the current system, emissions reductions will cost us more than they should because of highly selective schemes create incentives to reduce some emissions but not others. Policy relics such as the fuel tax exemptions for off-road uses and discounts for large on-road vehicles actively discourage reducing emissions efficiently while lowering the cost of fossil fuels relative and against alternatives, and cost the budget around $8 billion a year.

Very low government revenues from extracting gas, as I've already discussed, are also not encouraging global reductions in emissions at least cost. The tax system can help deliver energy transition as a low as cost as possible. The purist view and the view I've had for a long time is obviously around having a carbon price. That is the best way to do it. And I support it on principle, but I recognise given how complex a system we have developed right now, it might not be practical to do this in the coming years.

That said, it took several unsuccessful attempts before we managed to get a GST up and running, but the mention of a carbon price has pretty much evaporated, I'm afraid, now from the debate. So I think we are going to have to look at more pragmatic reforms that include things like the fuel tax rebate, the broader question of road user charging as a replacement to fuel excise taxes, as well as increasing government revenues from oil and gas extraction and using funds to support the transition which is currently a burden on the taxpayer.

This is not just about those individual areas of reform. This is also about look, how do we change the system so that we don't have to wait 20, 25, 30 years for significant reform to emerge? And this is why I continue to strongly advocate for the creation of a better and stronger institutions around tax reform. Reforming the tax system is always going to be hard, but it doesn't mean it can't be easier. And at the moment, Australia has a hodgepodge of private and public sector organisations with various degrees of independence that comment on Australia's tax system.

So we do have incredible tax thinkers, which is absolutely wonderful, but we don't at the moment have an organisation, as Chris mentioned the one in New Zealand, who has responsibility and the independence at a government level to really drive this agenda. I do believe a central organisation responsible for evidence and policy advice focused solely on Australia's tax system, such as we have with the Law Reform Commission in the legal system, could help minimise or reduce the politicisation of tax reform.

This organisation could keep tax reform front and centre of the policy debate, as well as be a trusted voice and a critique of poor policy decisions that suffer short-termism that we've become accustomed to. The tax green paper has also considered options drawing from international examples. And it could also provide, I think, a counter to some of the issues I think that practitioners have raised with me in relation to how the ATO is working currently, and having more of an independent body that considers some of those challenges I think would be of real use.

So the question is then, well, how? How can we get tax reform on the agenda? As I said, in Parliament, I'm one of the few voices who does talk about this. And the truth is there's never going to be a good time for tax reform, but I also believe that we can't keep kicking the can down the road, and I do believe that the next Parliament is a real opportunity and a real juncture on this. Certainly if I'm re-elected to Parliament, I'll be pushing whoever's in government to implement a process of tax reform.

There are not large number of shapes I think this could take, be it a Parliamentary commission, a government-led process like the Henry Review, or an external arm's length process approached by an organisation like the Productivity Commission. But I think regardless of exactly what form it takes, I think it's a question of five key ingredients that need to underlie that reform.

Firstly, it's got to start early in the new term, ideally actually, to be concluded within a year because the closer you get to the election, the harder this gets. Secondly, the government must be required to respond. Currently, you see with so many different things, including the Henry Review, reviews get made and then the government nor the opposition actually responds. So we don't actually get the benefit of engaging on some of these really important reforms.

Thirdly, it has to engage across the Parliament, including with the opposition and the crossbench. Fourthly, it's got to be an open process that deals with practise as well as theory. And finally, it needs to have robust community engagement. And I think those last two points are really important, particularly in relation to reflecting on the Henry Review. As I said, the Henry Review, I think is a great piece of work, a really wonderful piece of work, but the problem is it hasn't gone anywhere.

And when you say, "Well, why?" Part of it was it was developed by experts within closed doors. So when it landed with the community, it was up to the politicians to sell it. Now, I always say politicians are not courageous. If the community wants to do something, we're all behind you, but it's hard to lead politically, particularly on tax because there's so much wedging. And that is why I think this process has to be a different sort of process, a process which is open and actually is engaging and is public so that the community can be involved but also has a deliberate approach of how to engage the community.

I'm a fan of something that is called deliberative democracy, about getting randomly selected members of the community in to talk about tax or talk about issues. And we had a mini go of that back in Paddington about six weeks ago, where we had around 100 people from my community who were interested in tax come and spend an evening together and break up into groups of 10 and talk about the trade-offs in the tax system.

And it was illuminating because these are people, some people with enormous qualifications and interest in tax, some people who just care about the economy and are interested in this area. And what was interesting is they could really engage on the trade-offs, they can really talk about some of the issues, and they could do it in a respectful way. And I think that is actually a huge opportunity and actually a necessary part of reform.

So I really want to conclude with, I don't pretend to know all the answers. I believe this is a really complex area and I welcome well-intentioned differences of opinions, particularly from experts and professionals such as you, who live and breathe the system. For me, this has to be the beginning, not the end of the process. While reform and advocacy falls to politicians, there's a huge role for the group of people here in this room.

The business, community and tax practitioners need to be pushing for change, as I know that you do through the CPA, as well as being active in bringing workable solutions to the table. But it's not just doing that in your professional worlds. You are leaders in your community. You have influence locally. So around the dinner tables, over drinks, at barbecues, you're the tax experts in your collective networks. Tell them.

People are intimidated by tax, they think it's too scary for them to engage with them. So please encourage them to get involved, get informed and make sure that this is a conversation that we can have across the community because you can bring the community along on this really important issue. So thank you.

Chris Freeland AM:
We'll now move to the panel discussion. And joining Allegra on the panel, we have Dale Pinto, who is a John Curtin distinguished professor at Curtin University and also the global president and chair of the Board of CPA Australia. Elinor Kasapidis, who's the chief of Policy, Standards & External Affairs at CPA Australia. And Jenny Wong, the tax policy lead for CPA Australia. So I'll hand over to you, Jenny. Thanks.

Jenny Wong:
Thanks, Chris. So the tax green paper is a substantial contribution to the tax reform conversation and something our political leaders, as you noted, haven't been able to successfully take on. I think what sets it apart is the way it's written, it's accessible and engaging to the broader community, I was saying, "I give it to my 20-year-old cousin, and he was reading and making notes."

And Allegra, we've got a couple of questions that the panel wants to flesh out, and if we have time, we'll take some questions from the audience. But if I could start, Allegra, by asking, do you think GST, which was previously off the table requires a review first before meaningful progress on broader tax reform can be achieved?

Allegra Spender MP:
I think GST should be included in a tax reform approach. I appreciate that it is hard to talk about GST right now, and so I hope within a year, if inflation comes down, that you are able to have those sorts of conversations. But I think that it was a mistake to exclude GST from the Henry Review because it leaves one of the biggest levers completely off the table and it's just impossible from that point of view.

And I think the other side of this I think is important for GST, one of the challenges is obviously there's distribution of GST. So that, I think has to be definitely on the table. I know I'm sitting next to someone from WA here, so you guys are running a structural surplus while the rest of the country is running structural deficit. Sorry to have a go at WA for a second.

But I think both the distribution of GST and how workable it is for the states in terms of predicting state finances and incentivizing the right sort of state innovation is, I think important to consider for GST, but also how it can be used as a potential mechanism in terms of reducing income taxes. So absolutely needs to be there.

Jenny Wong:
I think the Howard government made a promise back in 1999 under the intergovernmental agreement that they can't change the GST unless there's unanimous agreement from the states and territories, and that almost needs an expiry date.

Allegra Spender MP:
But it's not constitutional, it's legislative. So in theory, they may not like it, but it's possible to do. We don't have to go, thankfully, to a referendum or anything to deal with something like that, but there will be political fallout, and I do think that that is the opportunity. Some of the stats we talked about here, or I've been talking about, are state taxes, where the states recognise they are not helpful for the states.

So that is where the opportunity is, is to sell an opportunity to the states to say, "Okay, if you talk about GST, could that be used as some of the dealing with payroll tax or land tax or some of those other kind of challenges that the state governments have in terms of their tax system as well?"

Jenny Wong:
Thanks, Allegra. Elinor?

Elinor Kasapidis:
Thank you. And following on from that, the blessings of federation, that federated model where actual tax reform in Australia requires both the federal tax structures to change as well as the state tax structures, you've highlighted a lot of proposals that, depending on different people's choices and situations, will trigger some reactions. Don't take away my negative gearing.

There are so many stakeholders. You've got the community, so even when you get the Australian community on board, you've got the states and that changes. So what strategies or what approach can we take? Because you're leading the charge, we're on board, there's centuries of tax knowledge here in this room, but how do we actually align, like you mentioned at the end of your speech, to get those sorts of stakeholders all lined up?

Allegra Spender MP:
Look, I think on the one side, as CPA is doing, as many different organisations are doing, is putting this on the table and keeping it on the table. And I think I wouldn't have been able to do what I've done if there wasn't so much interest and so many other people pushing the same way and doing fabulous work. The Tax Institute did a wonderful paper a little while back on the need for tax reform.

The Corporate Tax Association, the business groups, so many people are pushing this, and I think it is that collective effort that helps the community get across it. And even on something like negative gearing, if you look at, say, the community sentiment around considering negative gearing... And I think there are pros and cons, I'll be honest. I'm not saying, "Hey, it's the end." And I think it's massively oversold, to be honest, in terms of the difference it will make in housing particularly.

But the community sentiment in terms of being open to negative gearing increased by around 20 percentage points from the first time it got raised into the 2015s, 2014s to the 2019 elections. So I think the point is that when people talk about issues, people do consider it and consider these issues on their merits. So I think this is about having a process in the Parliament, but it comes back to a process that is open and that deliberately engages community in quite structured ways because I think that is one way of driving it.

I don't believe it's going to be simple, and I think those are some of the things I think are most important. And actually, so the other piece which I think is really important is packages. And I think this is one of the mistakes of Bill Shorten's 2019 election, in my understanding, is they ended up basically raising more money from all their tax changes they were going to suggest than they're actually going to spend.

And what he said recently in Parliament as he was leaving, he said, "What I should have done is changed all these things and given it back to everybody in income taxes." And so I think if there's push and pull as it was in the GST days, there was a sense of, okay, well, you are making it harder for me here, but easier for me here, I understand the balance.

I think that's reasonable, but I think if it's only one way, which is hey, we're going to just hike tax, I think that is when you really do get people's heckles up, particularly if you're not doing enough on making sure we're spending every dollar in our government as well as we possibly can.

Dale Pinto:
Great. Thanks, Allegra for your thoughtful presentation and also, frankly for the courage to engage the community on the vexed topic of tax reform. Sometimes it's the barbecue stopper, not to anyone in this room, but I'm sure to many. We've been at a barbecue where we've talked tax and people walk away from you, and especially in the context of where we are in the election cycle. But I think it is a dialogue, as you say, that everyone needs to engage, everyone needs to engage with, because it affects all of us.

So I want to come back to the last priority you were talking about, which is the actual process of tax reform because over the years we've had really good ideas, but they never materialise, and I think part of it is the actual process that we go through to undertake reform. And in that context, one of the six priorities in your paper is the tax reform commission that's independent, which I still think is a good idea.

This was raised at the 2011 Tax Forum last time, but it's fair to say it was a lukewarm/reluctant response from the government at the time. So putting that to one side, I think one of the really important points made in your paper is, I think what you've called the window of opportunity, meaning that tax reform discussions need to occur early in parliamentary terms so that there's sufficient runway for consultation and legislative action and so on.

So getting your crystal ball out now, Allegra, do you think there's any prospect or appetite, given the long-term nature of tax reform, for extending political terms to allow and better align the political process with the time that's needed to actually prosecute and consult and bring these things forward? Because all too often we see good ideas, governments change, and then we're back to square one. So long-winded question, sorry.

Allegra Spender MP:
No, it's a good question. Unfortunately, that is something that needs a constitutional change, a referendum. So if you want it to change, I'm a big fan of going to four year terms. I think actually most politicians are a fan of going to four year terms. No one's quite sure what to do with the Senate because that would mean eight-year terms for the Senate, and does that feel like a bit long?

But I think at House of Reps level, I think most people are keen on that. But the challenge is you have to take it to a referendum, and has it gone to referendum before. So I think that's a really big challenge to get there. And to come back to why I think there's an opportunity now in a way that hasn't been in the past, is because I think actually our problems are more acute now. And I particularly talk about housing and young people and productivity because the concern that people have for the ability for young people to buy houses and to get ahead is quite palpably different to what it was three years ago.

And I think as a community, we recognise it's not working. It just isn't working for different people. In the last 20 years, house prices have gone up by 4X, incomes have gone up by two times. Those two things just don't match. You can't keep on that.

So I do think there's a fundamental concern, I think across the community that we're not doing the right thing for future generations. And then I think the productivity issue, again, is much more drastic than it was in Ken Henry's day. So also a bit to your question, Elinor, I think what we can do and what we need to do on tax reform is to remember the why, because most community members aren't going to get excited when you say, "I want a more simple and efficient tax system that is more like Adam Smith's original definition of what makes a great tax system."

But I think if you say, "I'm worried about these challenges, I'm worried that young people can't build the lives that they wanted, that we've got low productivity and growth, and that the climate transition's going to cost us more than it should because our tax system isn't working," I think it's a better reason for people to get excited than the more academic reasons, I think, for tax reform.

Dale Pinto:
And I think just quick follow-up, I think the way you are going about it in your paper is very different. You're starting with a grassroots consultation, which I think you instanced the example of your community consultation, which I think is-

Allegra Spender MP:
Which Jenny was at.

Dale Pinto:
It's a good way to do it, but also really support the idea of the tax reform commission because I'm sure everyone in this room can think of at least five examples of bad tax policy that has to be fixed up after the event. And if you had an independent body that's not decision-making, but advisory to government consisting of people like you see in this room, who are practitioners or academics or members of professional bodies, I think we'll get better tax design and then less compliance costs and less post-implementation reviews.

Allegra Spender MP:
And I've seen that firsthand in some of the tax reform. And probably reform with a big R, but some of the changes have gone through Parliament and engaging with the community and this type of community, the real concern, really legitimate concerns that hadn't been properly dealt with by the time that the legislation hits the green room, and that just doesn't work. It's the wrong time and it creates uncertainty and it creates uncertainty for business. And we are still dealing with a bunch of that uncertainty still, and it's no way to drive reform. It's no way to do it.

Dale Pinto:
Thank you.

Jenny Wong:
Thank you. Does anyone have questions from the floor for Allegra? We might have time for one or two.

Anthony McShane:
So Allegra, I was wondering, obviously you're very passionate about this, how do you feel other members of Parliament are? Do you think they're passion-suppressed because they're in the party, political system? Do you think there's other members out there that are as passionate but are silent for various reasons?

Allegra Spender MP:
Maybe passionate. I think there are people who recognise the problems. And it's interesting, you often see politicians do this when they leave. So you see Joe Hockey talk about the taxes changes he wished he'd made when he did his valedictory speech, you hear Bill Shorten do something similar. And suddenly in this process, we invited members of staff from both the Treasurer and Shadow Treasurer's Office and they attended through some of the round tables.

And that was very deliberate. I'm not hiding what I'm doing. I'm trying to actually bring them into the conversation and the major parties, as well as the crossbench. So I've done a briefing with members of the House and Senate crossbench on this. And I think for a lot of people, there's a lot of interest recognition of the problem, but perhaps less confidence on the detail because it's a complex area. Like any area, it's pretty technical and it's certainly taken me a lot of time and effort to get my head round around it.

And I think there's more opportunity there, but it's the political wedging that holds people back. And that is one of the reasons why I chose to do this from the crossbench because I felt, well, if I was a reformist backbencher in one of the major parties, there's no way I could do something like this. I'd have to sit there and bide my time and make internal representations, but nothing I could do publicly. And I think you need to do some of this publicly.

And I've certainly had supportive texts and people who've said they've read it and had comments on it from across the Parliament about this. So I think there's appetite, but it's hard to do from the major parties. It's much easier to do as an independent crossbench to really say, "Hey, there's opportunity here." And to challenge them. So I hope so, and I'm going to keep on working on building it. Thanks.

Jenny Wong:
Anyone else?

Zennia Csikos:
Hi. I think your idea of having an independent tax reform body is a brilliant one. Having spoken to some of the people within Treasury, we've got some really excellent brains in that Treasury group, whether they can actually be deployed with additional resources, they seem to be always behind in terms of being able to cost out potential tax measures or any other government measure in terms of how it impacts the economy, yet they have all the data readily available to them.

Is there any opportunity for extra funding for Treasury to actually have this specialist group that can actually look at the long-term strategy for Australia as a whole and have these different models and forecasts as to what that might look like outside of just tax reform, but just country strategy, I should say?

Allegra Spender MP:
Look, I can see a really good argument, and it would be also possible to put something like a tax reform group within Treasury, but having it more independent I think is also really valuable. But I think we shouldn't underestimate the importance of the work that Treasury does both at the national and at the state levels. And certainly all my experience, some of the work I've drawn on has been from Treasury at the national and the state levels as well. And it's absolutely critical because no one else has the numbers, no one else has the insight that Treasury does, so you guys are in a particularly strong position. So I certainly would support that.

Jenny Wong:
Probably one more question and we'll wrap it there, I think.

Catherine Dean:
Thanks very much, Allegra. Very interesting discussion and a very interesting paper. A question on productivity, and specifically in relation to gender inequality and impacts on productivity that are caused by gender inequality. I was reading a recent federal government paper saying that basically there was a $128 billion cost due to lack of female participation in the workforce. That's a huge cost for our economy. So I'm just interested to hear your perspectives on where we could have productivity gains through increasing female participation in the workforce.

Allegra Spender MP:
I think it's a really, really important issue. And Danielle Wood at the Jobs and Skills Summit had the best analogy, where she said if the gap in wealth that Australia could have, which is due to some gender inequity, was a mine or a gold deposit or an iron ore deposit, the governments would be falling over themselves to try and access it. Sorry, I've butchered her words, but she was brilliant.

I think it is a really big issue. It's really hard. But the area for me, I think is really about sharing the caring. So there are questions about what careers women choose to go into versus men, and I think that's one area when you break down the gender pay gap and things like that. One part is career choice. But if you're really looking at labour productivity and participation in the workforce, where it really diverges is when people have children. So the question is, can we have a greater model of sharing the caring?

And I think that really comes back to how, for instance, our paid parental models, which I'm a big fan of I think some of the Nordic countries which have much more use it or lose it if the second parent doesn't engage in this. And there's a great Grattan Institute report on this called, I think Dad Days or something like that. And it basically says that there's a benefit to children having more male involvement with children in early days. There's an inter-male mental health, there is a benefit for children's relationship with their parents, and then there's a benefit for women's economic empowerment.

So I think there's actually a three-way benefit if we better, more equally shared raising children and the norms around raising children start when the children is born and in the first 12 months. So I'm a big believer of splitting, frankly, parental leave and saying, "Okay, both parents need to use it, and it's lost if the second parent doesn't use it." So that's probably my favourite idea. Lots of other ideas, but I think that's probably the best idea that we have.

And we've gone some way in this Parliament, so we've increased the second parent part from two weeks to four weeks, as well as increasing paid parental leave, but I wanted them to go to six weeks or eight weeks, something that would really establish norms so that people got confident actually about raising kids. That's my personal view. Did you have any comments you wanted to add or any ideas that you wanted to share?

Audience one:
That was very insightful. Also, I suppose just thinking about gender pay gap, I think it's running at about 13 to 15% in Australia at the moment and I just think if we could fix that, that would go a large way to fixing our tax deficit as well.

Jenny Wong:
Well, thank you, Allegra.

Allegra Spender MP:
Thank you.

Jenny Wong:
I think we'll wrap it up there. Thank you for your thoughtful insights. We've got much to reflect on. I'll hand over to Chris now to close the luncheon.

Chris Freeland AM:
Thanks very much. I would like to extend my thanks to Allegra Spender for joining us today. I'm sure you'll agree that the work that Allegra and her team is doing in this space is making a very important contribution to the tax reform debate in this country. And so it was a privilege to hear from her directly today on this topic. Would you please join with me in thanking Allegra Spender.

I'd also like to thank all of our panellists for their thoughts on the session today. Today's conversation highlights the importance of tax reform and events like today reflect our determination to bring together policymakers, industry leaders, and tax experts to navigate these important issues and ensure that discussions like these continue to drive momentum for change.

A special thanks to Katrina and the team, who put together today's lunch, done a fantastic job. Thank you all for joining us today. Look forward to collaborating again in the future. Please stay connected with CPA Australia as we continue to advocate for a tax system that works for all Australians. Safe travels, and enjoy the rest of your day.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance, business, and accounting news. 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.