Cleaning out the stables

Treasurer Joe Hockey's first major tax policy announcement doesn't amount to tax reform, but it does clean out the tax policy stables. Tax policy will never be perfect in the eyes of tax experts, but in recent years it has been especially ad hoc and harmful to the legitimate interests of taxpayers.

Hockey's statement will undo some of the damage by dealing with previously announced measures that have not yet been legislated. These are so numerous that clearing up uncertainty over their future is a significant advance in itself. The fact that there are 92 such measures says a lot about the instability and unpredictability created by excessive tinkering with the tax system.

Opinions will differ on how the new government has chosen to deal with each measure, but Hockey's announcement at least removes uncertainty by confirming which of the 92 will go ahead and which are to be scrapped or modified, while imposing a deadline of 1 December for the government to determine the fate of the others.

For some years, as the previous government scrambled to impose fiscal discipline by raising more revenue, tax changes were announced faster than government's ability to implement them, resulting in the backlog of 92 measures. This is no way for government to treat the governed. Tax policy should be properly thought through and then implemented expeditiously through legislation, not by press release.

Another welcome result of Hockey's clean-out is that it blocks some enormously complex changes. The tinkering of recent years aimed at raising relatively small amounts of revenue shows that the Henry tax review's call for much greater emphasis on simplicity in taxation fell on deaf ears.

Superannuation tax was the previous government's favourite target for revenue-boosting tinkering that increased complexity and compliance costs. The mooted tax on earnings above $100,000 from funds in pension mode – now abandoned – would have been extremely complex to implement, whatever else one thinks about it.

Complexity aside, from a broader tax policy perspective many of the measures of recent years have been more pragmatic than principled. They appear to have been devised on the run to raise a bit more revenue in the cause of balancing the budget, but without regard to sound tax policy principles.

The lesson from this experience is that not every budget change can be justified just because it helps reduce a budget deficit. Sometimes the deficit is less harmful than the specific measures put forward to reduce it.

Robert Carling is a Senior Fellow at The Centre for Independent Studies.