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How tax law is made in Australia – Part 1. A lot of it goes all the way back to 1901 when Australia became a modern federation of states.
How Tax Law Is Made – Part 1
Over the next two episodes Robyn Jacobson of TaxBanter will explain how tax law is made in Australia. We have listed here what we learned from that episode. But please also listen in since Robyn explains all this much better than we ever could.
To listen while you drive, walk or work, please listen through a podcast app on your mobile phone.
Under our constitution we have three independent arms of government that shape our tax system. Legislature – Judiciary – Administrator.
Legislature
The Australian Parliament is based on the UK Westminster System. This system consists of two houses – the House of Lords and the House of Commons. In Australia we refer to that as the Senate and the House of Representatives.
Senate
The senate – aka Upper House – has 12 representatives from each state and 2 from each of the territories.
House of Representatives
The House of Representatives – aka Lower House – is based on population. All 151 electorates are based on population size. So whoever holds the majority of votes in that particular seat wins that seat. And whoever forms the majority of seats in the Lower House forms government and issues legislation.
Judiciary
The courts then interpret this legislation in the form of case decisions and case judgments, ie the judicial interpretation of the law.
Administrator
The administrator is the Commissioner of Taxation who administers the tax laws. The Commissioner – aka ATO – does not interpret tax laws. This is the job of the courts. But instead the ATO provides guidance, interpretation, rulings and other documents that explain how the law works.
Lower House
There are 151 seats in the lower house. The Australian Electoral Commission (AEC) keeps a tally of who wins what seat.
To form a majority government you need at last 76 seats out of the 151 seats. If you have less than 76 seats, you might be able to form a minority government with support from independents across benches in the lower house.
A member leaving the Lower House will require a by-election in that electorate to elect a new member.
The parliamentary term is 3 years. Every three years there is a dissolution of the Lower House and all of the members of the Lower House are up for re-election.
Upper House
There are 76 seats in the Senate. You need 39 seats to pass legislature.
A member leaving the Upper House does not require a by-election. Another person from the same party can replace them without a new election.
In the senate we have 6 year terms under the constitution. Every three years half of the Senate is up for re-election unless there is a double dissolution as there was in 2016.
In 2016 PM Thurnbull called a double dissolution election, dissolving both houses of parliament. So in 2016 every senator started as a newly elected senator. The 2019 election had to go through a special process to determine which of the new senators had to face election in 2019 and which could see out their six-year term.
Senate is the house of review – having to review all legislation that comes out of the Lower House before it becomes law.
Announcement
A new tax policy usually starts with an announcement, possibly preceded by a review. There might have been a review – for example by the Board of Taxation – to look into a concern that the ATO has raised.
Announcements tend to fall into 2 categories. They are either an integrety measure to close off a loophole to avoid tax revenue leakage. Or they are a new incentive, measure or policy driven by economic factors or environmental, health, equity or another motive.
Announcements often come as part of a federal budget but they can happen any time during the year. Since 1994 the budget has usually been on the second Tuesday in May. The only exception is 2019 when the federal election pushed the federal budget into April.
Discussion Paper
The measure then typically progresses from an announcement to a discussion paper. The discussion paper is usually open for a few weeks for comment. It sets out what the policy is about, what the concern is and how the bill is going to address it.
Exposure Draft Legislation
Reviewing comments received in response to the discussion paper, Treasury then drafts “exposure draft legislation” plus draft explanatory material that accompanies the exposure draft. The release then invites comments from the public.
Getting changes through is much easier if the bill is still in draft form. Once it has formally been introduced in the chambers, every amendment needs to formally go through both houses which is a cumbersome process. So a lot of the lobbying happens at this stage.
The ATO does not get involved in the design of policies. They might suggest changes and identify issues but it is Treasury that designs and writes policies.
Bill
The bill is then introduced into parliament, where it might sit for days, weeks, months or even years.
When the Lower House is completely dissolved at a federal election every three years, any bill that is sitting before the Lower House lapses. Under our constitution it is not possible to carry a bill from one parliament into the next. If the government wants to proceed with the measure in the new parliament, then it has to formally introduce the bill into the new parliament.
In the Senate the bill does not usually lapse until the next session of parliament after the election. That’s for the simple reason that the Senate isn’t fully dissolved unless it is a double dissolution election.
First, Second and Third Readings
The first reading is the formal introduction of a bill and a formality as such. A bill may be introduced without any debate or discussion on it.
The second reading is where all the noise happens. This is where the debate takes place.
The third reading is just a formality again. It indicates that the bill has been accepted and is just waiting for Royal Consent. Once the Bill has Royal Consent, it is law.
Amendments to Bill
If the Senate made amendments to a bill, it will go back to the Lower House for a new Second Reading. Because of our two house system every bill has to get the approval of both houses.
And voila, this is how tax law is made in Australia. At least the first part of it – its legislation. In the next episode Robyn Jacobson will talk about the Australian court system as well as the ATO. the other two arms of government shaping the Australian tax system.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 03 May 2020
Tax Talks spoke to Robyn Jacobson - Senior Advocate at The Tax Institute - for more details.
