Thursday, 27 January 2005

It's about Bloody Time

The Australian Taxation Law is in an irredeemable mess.

I've blogged about the similarities between programming and the law before - and rather than repeat myself, I'll wait till you've read that article, as it's still germane to the issue.

Read it? Good.

One very true epigram of programming is that
"In the long run every program becomes rococo -- then rubble."
- Alan Serlis.
A nice, well-behaved system with just a few things wrong with it gets modified slightly, then a bit more, then oops that introduced a new problem, so we fix that, and that leads to more problems with the original change, so we fix those.... until the whole ramshackle tottering edifice crashes in smoke, flame and ruin.

The Australian Tax Law is now Rubble. It's literally impossible for anyone to state with any certainty exactly what the law is, though for most purposes we have a pretty good approximation. That approximation is "Whatever the Australian Tax Office says it is today".

From The Australian :
The Tax Act now runs to something like 10,000 pages. The Productivity Commission's Gary Banks reports the Australian Tax Office employs 19,000 people and spends more than $3 billion. This is about two thirds of all the staff the federal Government employs and the money it spends to regulate our lives. And much of the ATO's activity goes on combating taxpayers looking for loopholes. A simpler system would reduce compliance costs. And reductions in income tax levied would reduce the national sport of avoidance and, far too frequently, evasion.
A year or so back, Mr Banks warned if the tax laws kept growing at their present rate they would account for 3 billion pages by the end of the century. "To tax and to please is not given to men," said Edmund Burke. But lower taxes, efficiently and fairly collected, can make all Australians a good deal happier than we are at the moment.
And from another article, also in The Australian :
The Howard Government has secret plans to use its Senate majority to dramatically simplify onerous tax laws, including stripping back the 7000-page tax act.

In a reform push that will be welcomed by business, Treasury has been quietly developing a plan that reverses the present approach to dealing with tax avoiders.

The plan will see the tax act set out broad principles rather than take the existing approach, which makes the law so detailed that it closes every loophole.
Former High Court Chief Justice Sir Harry Gibbs, in another article states the facts plainly, and pulls no punches.
There is, however, one reform which, if successfully implemented, should (in Macbeth's words) buy "golden opinions from all sorts of people", even one hopes from the officials of the Treasury and the Australian Taxation Office.

This reform may at first sight seem insignificant compared with other matters of great moment that will be considered by the Government, but in fact would be of very great benefit to business, trade and the community generally.

The reform to which I refer is the rewriting of the income tax legislation. This does not necessarily involve issues concerning levels of taxation. The laws relating to income tax are a disgrace. There is nothing new in that reproach – it has been true for at least a decade, the only change being that the situation is getting worse.

The legislation is absurdly voluminous compared with our own earlier legislation and with other tax systems, and the volume increases rapidly from year to year.

Much of the legislation is obscure to the point of being incomprehensible. It gives the Australian Taxation Office unacceptably wide discretionary powers, including those given by the anti-avoidance provisions of part IV(a), which were inserted in an overreaction to some earlier decisions of the High Court.

It is, I think, true to say that many practising accountants no longer try to unravel the mysteries of the legislation by reading its provisions. Rather they rely on the various documents and rulings issued by the Australian Taxation Office – a subordination of the rule of law to the opinions of the Executive. The uncertainty of the law is an impediment to business generally.

What is needed is a completely new statute of manageable size and clearly drafted. By clarity of drafting, I do not suggest that there should be a repetition of the ill-fated attempt to put the income tax law into "plain English". Without clarity of thought, there can be no clarity of expression. If the present obscurities of the law were removed, there would be no need to confer on the Taxation Office discretionary powers that are offensively wide.
He ends with a final point worth considering:
I have said that this proposal would not necessarily entail any considerations of taxation levels. One would hope that the taxation scales will be reviewed. However, that review should be a separate exercise from the rewriting of the legislation and should be kept separate from it because, whereas there are likely to be widely differing views as to what scales are appropriate, there should be general agreement that the tax law should be rendered clear and accessible.

The rewriting of the taxation law could provide simplicity; the achievement of equity is another question.
This Tax Reform is not about changing levels of Taxation, or re-distributing the existing burden : it's about making a Tax Law that's (largely) capable of Human Comprehension and (certainly) capable of successful Administration.

I did a brief mathematical complexity analysis on the Tax Law as it stood in 2000. It showed that the complexity of the Tax Law was far greater than the rest of Australia's Laws put together. The truly Byzantine Social Security legislation came a very distant second, then all other legislation complexity was too small to measure by comparison. Since then, the situation has only gotten worse. The Tax Law needs mending with a new 'un. Now.

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