Key Points:

Many serious reforms have been implemented, and very strong Federal political will, together with strong state-based political consensus, will be needed for any further tax reform in 2016.

Over the last couple of years, there has been a lot of talk about tax reform, notably base erosion profit shifting (BEPS) and the proposed White Paper process. At this stage I think it's clear that while there may be some tinkering, there will be little serious reform till after the next Federal election, which is likely in late 2016.

Playing catch-up

There have been some serious reforms enacted in the last year, but these reforms are old news ‒ getting the backlog of announced but unenacted measures off the books. That job has now largely been done. As a result, we have the MITS regime, new rules on earn-outs, the transparency regime and so on. The big question in my mind for the coming year is "will anything actually happen?".

International tax

Sure enough, we've had the multinational anti-avoidance law (MAAL), which is a largely political measure pandering to the public perception that something had to be done to stop multinationals avoiding "paying their fair share".

There are apparently lots of votes in pedalling that line (new taxes don't win votes ‒ unless the tax applies to foreign multinationals). But really, no one in the know actually expects that the MAAL will raise much revenue at all. It's really a closet transparency measure designed to encourage multinationals to transact in Australia through Australian entities and run the gauntlet of our transfer pricing rules, rather than the current strategy of seeking to avoid a taxable presence here. The elephant in the room is how much profit is attributable to Australian operations, having regard to the functions and risks which are assumed here. The answer is probably not much.

Fundamentally, in order for foreign multinationals to pay a greater share of Australian tax, there needs to be core reform, especially to our source of income rules. The BEPS process left that issue alone, so I wouldn't expect much change there. Any unilateral action by us or any other jurisdiction would lead to serious double tax issues.

The progression to greater transparency and reporting so that the existing transfer pricing and other integrity rules can be implemented will continue. There may be some changes affecting hybrid instruments that straddle the debt/equity divide. Otherwise, it is probably business as usual. Going forward, international tax may be as much an area for PR advisers as for tax consultants.

The big issues, and the politics of taxation reform

There are a lot of big issues floating around (not for the first time), notably around the tax mix and the role of GST, superannuation and negative gearing. Interesting ideas are surfacing, for example, that the solution lies in legislating a minimum effective tax rate, akin to the US alternative minimum tax system.

There is perhaps little gained by adding my two cents to the litany of speculation which is in the press on a daily basis. Although I favour a higher GST rate with compensation for lower income earners, it's not that straightforward. For example, how do you compensate self-funded retirees who are largely outside the tax system (as they receive exempt pension income) and also outside the transfer system (as they are not receiving welfare payments)? For an increasingly large part of the population, that's a real issue.

But the real impediment to change is political. Like I said, new taxes don't win votes. The election before the GST was introduced in 1996, Prime Minister Howard's Government was voted in with a 45 seat majority. That was the second largest since Federation. The Howard Government might be considered fortunate to have been returned. The ALP made the biggest gain of any opposition party following an election defect.

The Coalition, notwithstanding the current popularity of its leader, will be cognisant that its starting point is a narrow majority; unlike Howard, it can't afford to give up much ground. There would need to be some very strong Federal political will, together with strong state-based political consensus, if any rubber were to hit the road in 2016.