The third wave is upon us. First upper management in pin-stripe suits got mobile phones; then tradespeople and now it is young people.
They have nothing to do with pose or statements of self-importance. They are wonderfully practical.
Some highly mobile young people I was talking to at the weekend use them as sole phones. They said the mobiles saved connection and disconnection costs. More importantly, as so many young people are casual and part-time workers they need to be contactable to get and keep work. That was their prime reason for buying it.
But this column is about tax, not phones.
“”Did you know you get a tax deduction for most of the cost of buying and running the phone?” I asked.
They had no idea.
Indeed most wage slaves have little idea about tax, and small wonder. The tax law runs to thousands of pages and every attempt to simplify it results in even more pages. More people are having to resort to accountants to do their tax returns.
More people are getting ensnared in very complex rules. For example the half million “”mums and dads” shareholders who took part in the Commonwealth Bank and Woollies share floats will have a very difficult time working out their tax liability when they sell. Adjusting capital gains for inflation cannot be done on the back of an envelope.
Business, of course, is crying out for simpler laws. The Australian Chamber of Commerce and Industry said at the weekend that a business survey revealed that tax was one of the major impediments to an economic pick-up … not just the level of tax, but the cost of complying with the complex law.
It is easy for business to point the finger at government for enacting complex laws. But business, itself, has to take much of the blame. A fair portion of business always took advantage of simple law. They rearranged their affairs in very complex ways, so that income was not legally income (but capital) and money spent on all sorts of goodies was legally defined as money spent earning that income and therefore deductible. Moreover, over the years business conspired with employees to get around the tax law by paying them in (non-taxable) kind, like cars, schools fees and phone bills. They constructed trusts and companies and moved money betwixt and between to avoid tax.
Small wonder, then, Governments countered with the capital-gains, fringe benefits and other taxes.
Governments are therefore aware of the danger of simplifying the law. None the less, the Australian Government has tried. The first part of the Tax Law Improvement Project to replace the 1936 Act with its manifold amendments, has been introduced. It is a simple 440 pages.
So what is to be done for the 85 per cent of businesses which are willing to call income income? What is to be done for the 95 per cent of individuals who are willing to pay fair tax on fair income?
We cannot have a simple system. It will get rorted.
But there is a solution. We should have two systems, and taxpayers should choose which one they want to operate under.
System A would a simple code. Ordinarily, it would be easy for smart lawyers to circumvent it, but it would contain a discretion clause. This clause would allow the commissioner to deem anything at all as income and disallow any claim for a deduction whatever at his total discretion.
Those who did not like the wide deeming and discretionary powers could opt for System B. This would be the present system of 1000 pages of tax law detailing minutely the character of every financial transaction known to humankind.
Business could have the simple law they crave, but not the rorts that come with it. This would be far better than the present system and the self-defeating simplification process under way. It would also make things simpler for the tax office and fairer for mobile-phone-owning wage slaves daunted by present complexities.
Given that John Hewson’s ineptitude in presenting his GST has put consumption taxes off the agenda forever, tax reform is, as business says, more crucial than ever. But let’s not listen to calls for simplification from the very people whose rorts forced governments to make complex laws in the first place without engaging in a little lateral thinking to prevent a repeat performance.