Henry Review to grapple between simplicity and significant change

The Henry Review could grapple between the goal for a simpler Australian taxation system and making significant changes that might split labour and salary income from investment and saving income.

Referring to a speech made by Ken Henry in October 2009, tax expert Tony Frost of Greenwoods & Freehills said there is a sense Treasury is keen to see significant change in the system of "taxing all income in a bucket".

"What they might do - perhaps - is have a system where labour income and salaries is taxed in one bucket, and income from savings and investments is taxed in another bucket," Frost said.

Frost noted that Henry said the review would look more closely at simplicity in the taxation system. He said Henry is aware that simplicity has received little attention in previous reviews and asserted that as a result the Australian taxation system is out of control.

"We have been saddled with a system that for our size is over-complex. There is a sense that they would like to simplify it. But if you are going to do that, how does simplicity fit in with going to two systems of income tax?" Frost noted.

"There's an inherent tension between trying to make the system simpler and then trying to tackle income in different ways."

He noted, however, that history had shown that any significant recommendations take some time to be implemented. Referring to the last comprehensive review of the taxation system, which was the Asprey Review in 1975, Frost said, "A lot didn't happen until 2000".

He added that reviews of this kind were significant undertakings.

"I expect that there will be a lot of recommendations and realistically you can't expect any current government to do much more than start on it."