The 1999 Review of Business Taxation: Should We Fast Track Small Business Tax Reform?

Abstract

This article examines the policy design processes associated with the 1999 Review of Business Taxation. Given the breadth of the Review’s recommendations, this article focuses on two of its enacted proposals, the non-commercial loss (NCL) rules and the Simplified Tax System (STS). Whilst this legislation closely followed the Review’s recommendations, the NCL and STS rules have been subject to much criticism by commentators, professional and government bodies. The STS proved to be very unpopular and was eventually scrapped on 30 June 2007. The NCL rules, though, have remained intact, notwithstanding the considerable angst of small business. This article analyses the Review’s problem identification processes. Its proposed solutions are investigated in the light of the experience with the enacted reforms. The article highlights the shortcomings of the Review’s problem identification and policy design processes. Taxation enquiries should adopt a more gradual, transparent and consultative approach in identifying and researching problems and in drafting taxation reform solutions. In particular there is a great need to carefully develop objectives for specific tax reforms and to build socio-economic modelling capabilities to forecast the fiscal adequacy, economic, equity and simplicity impacts, as well as to assess policy outcomes.