No one can predict the future – but we can be relatively confident that the Australian tax system in 2025 will bear the imprint of changes we are already seeing.
Some of these changes are incremental in nature and others – mostly technological – are transformational.
In our report Tax 2025, we argue that developments – currently fledgling – such as the use of cognitive intelligence, will change the nature of both the corporate tax function and national revenue authorities over the next nine years.
For taxpayers, tax in 2025 may well see the application of artificial intelligence to the preparation of tax returns. This is beyond complex automation which would involve picking up items in the general ledger and mechanistically using that data in the tax return. Rather artificial intelligence may be used to discern whether an item is likely to be an improvement or a repair within a high range of certainty, based on learning experiences from previous analyses.
It is likely that the efficiencies from the use of artificial intelligence and automation will lead to greater outsourcing of the compliance function. This will free-up personnel for greater value-added activities and also provide deeper comfort in an environment of higher scrutiny.
For Revenue Authorities, they are likely to become far more precise in their targeting and enforcement. They will be able to have direct access to the General Ledger and to run various mechanistic and cognitive intelligence-based analyses to test systems controls and precisely target tax risk. This will arise from a relatively deep and long term understanding of business taxation combined with new technology tools.
As for the tax system itself we see some key changes.
- For small to medium-sized economies, company tax rates will settle between 17 percent and 25 percent. It is likely that pressure to reduce the Australian corporate tax rate to within this band will remain, but it may not be achieved by 2025.
- While there will be an international move to higher indirect taxes, domestic political difficulties will see Australia with the same low consumption tax base and rate in 2025. This will be further diminished as expenditure patterns change towards increased health, which is substantially GST-free.
- The rise of the ‘gig’ economy – a highly educated group of people globally willing to provide services through the internet for lower cost – will diminish our personal tax base and put pressure on our high marginal rates.
- There will be a drive to user-charges as a source of revenue rather than through taxation. This will be politically difficult but technology may assist in ensuring that such charges are more efficiently collected.
- By 2025, more states will have joined ACT on the path from stamp duty top land taxes. But Australia will continue to resist calls for wealth and estate duty taxes. ‘Sin’ taxes and financial transaction taxes will increase in rates and usage.
Underlying our paper is a philosophy of meliorism. This word dates from the mid-19th century and is a belief that ultimately the world is getting better. Thus, there is a positive predisposition.
This, however, is tempered by the knowledge that the past 60 years has provided most of those living in this period with many benefits which are not sustainable, and that we face challenges that we do not seem prepared to meet. The obvious outcome is generational inequity.
Our pensions and tax concessions for retirement incomes are significant and ballooning health expenditure largely benefits the aged. These are largely borne by younger generations. This is exacerbated by our structural deficit which is a borrowing of the current generation from the future. Also the younger generations are unlikely to experience the very substantial rise in wealth experienced by the baby boomers emanating from the increase in property values.
Policymakers will have to respond as the issue becomes more transparent and younger generations become more assertive. But this will feed into a broader mindset that people will want to work into their 70s and 80s in the future. Work for older people will be a large, and positive, cultural shift.
One thing we do not see changing is community and stakeholder interest in companies’ tax affairs.
But we fervently hope that by 2025 the political debate will have begun to appreciate the importance of locally based multinationals. They are becoming rarer but produce a disproportionate benefit to our local economy in terms of skills within the corporate function and insights into the geopolitical framework within which the multinational operates.
Our concern is that we will become too insular in our policy settings to allow our own multinationals to thrive. If this fear is realised, 2025 will see us more like a distribution centre for other multinationals, which would set back the retention of talented people in Australia.
There will be much to look forward to over the next nine years, and many developments that will shape our tax system. But we need to rise to the task, not shrink from it.