Complexity A sketch in five slides June 2015

How did it get so complex? 2 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.

Layer on layer of complexity 3 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.

4 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 snapshot

And for business, Australian tax, is not as easy as… 6 Ease of paying taxes 2015 World Bank/PWC Rank Hong Kong4 Singapore5 Canada9 Denmark12 Norway15 United Kingdom 16 South Africa19 Finland21 New Zealand22 Malta26 Chile29 Malaysia32 Sweden35 Australia39 United States 47 World Bank Group & PricewaterhouseCoopers, Paying Taxes 2015 (2015) pp