Australia's tax reform 2.0

It's that time again...

Time for the inevitable conversation that we all knew we'd have to have about our future.

Tomorrow, Treasurer Joe Hockey is going to launch the next version of Australia's five-year old tax reform conversation, which was first started in 2009 when the previous government initiated the (almost) comprehensive review of our tax and transfer system led by then Treasury Secretary, Dr Ken Henry.

A lot of hard work was completed in the previous tax review, looking closely at how our system could be re-balanced to deliver a more effective, modern and stable tax base for our future. Some of the world's foremost authorities on tax policy were involved in contributing ideas into the process, and in the end the close to 150 recommendations made by Dr Henry and the review panel were well-thought out.

But after the final report was handed to the government, it quickly became apparent that coming up with reform recommendations was only half of the challenge.

The other half of the challenge resides in the political and communication arena.

Harnessing political 'buy-in', and a genuine desire to engage in dialogue with the community about why we need to bring about change to our tax system, what it will mean for them, and how they (and the broader community) will be better served by a reformed tax system - are all extremely difficult to deliver on. Just ask any former Australian Prime Minister or Federal Treasurer still around today - they will all tell you how much political 'skin' they lost in arguing the case for tax reform.

One of the things that I am going to find most interesting to watch play out over the coming 12 months or so is how we as a community will engage in the tax reform discussion, this time around.

Will this version of tax reform be better managed than the previous version?

The President of the Americans for Tax Reform group, Grover Norquist, said recently that "I'm for tax reform, not tax increases."

And while I suspect many in our community have the same perspective as Norquist on what tax reform means to them, the reality of the economic and fiscal situation we find ourselves in here in Australia now is that an expectation that tax reform will lead to universal tax reductions for individuals and businesses is unrealistic - at least in the foreseeable future.

More realistically, I think the conversation will need to be framed around how we improve the current 'tax mix', as between direct income taxes and indirect taxes. And perhaps even, how we chart a pathway from where we are now to where we want to get to. That's a critically important part of the conversation that we don't often talk about.

In terms of the destination, I think we need to explore how can we re-align our tax system to be more fair and equitable, but at the same time ensure we position our economy and our businesses to compete with other countries around the world.

We need to attract capital investment into Australia, and we know that the competitiveness of our tax system is a big part of the decision-making process for investors offshore who are weighing up whether to put their money into Australia.

Similarly, we know that the creation of new industries and employment opportunities across our economy into the future will be heavily dependent on our capacity to innovate and support entrepreneurial risk-taking. We haven't done very well with setting ourselves up for success in this area in the past. Many of the high-growth Australian businesses that have achieved great things globally in the last decade have observed that they have succeeded despite the inefficiencies and roadblocks in our tax system, not because of them. If we are to be responsible stewards in preparing our economy for the future, we are going to have to do a lot better on this front.

For our part of the tax reform conversation in the period ahead, AVCAL is going to be squarely focussed on these two themes - boosting business investment and better supporting innovation and entrepreneurship.

So, let's all get ready to do everything we can to make this new and improved version of the tax reform conversation as constructive as possible. There's a lot riding on us getting it right this time around.