Pitcher Partners calls for targeted reforms to support middle market sector

Pitcher Partners has submitted a submission to the Treasury ahead of this month’s Economic Reform Roundtable in a move to propose reforms that “make a real difference to reduce systemic complexity, minimise regulatory burden and foster investment”.

In its submission, the firm highlighted six key recommendations aimed at bolstering the middle market, including the replacement of trust provisions with a uniform entity regime, tax consolidation for middle market entities, flattening of the personal income tax rate structure, enabling income sharing between spouses, GST reform and strategic investment incentives.

Alex Kokkinos, partner at Pitcher Partners, said the submission and its six top recommendations were aimed at making a real difference to reduce complexity, minimise regulatory burden and bolster investment.

“These reforms are essential to ensuring that there is sustainable growth and a continual increase in productivity of this critical sector of our economy into the future,” he said.

“Our submission focuses on reforms that would make a real difference to the vital middle market sector, which contributes to half of Australia’s economic activity and employment.”

According to Pitcher Partners, trust provisions should be replaced with a uniformed entity regime as the existing trust taxation framework was overly complex and a simplified alternative regime could consist of a uniform private corporate tax flow-through model, applicable to trusts, partnerships and companies.

“Under this proposal, all entities would be taxed at the corporate tax rate, with deductions being allowed for certain qualifying distributions,” Kokkinos said.

“A uniform system, with limited flow-through, can help reduce the need for multiple entities within the structure, and could significantly reduce complexity and administration. Furthermore, a uniform entity regime could help to reduce reliance on integrity measures like Division 7A.”

Tax consolidation for the middle market, entitled to allow private family groups to expand the current tax consolidated regime to include discretionary trusts, was also outlined within the submission.

It was noted that this reform proposal could help eliminate the need for trust distributions to occur between entities within a group, the need for family trust elections for tax losses, the associated family trust distribution tax provisions and could help limit Division 7A to distributions to individuals.

In addition, flattening the personal income tax rate structure would provide further alignment of the top marginal rate with the corporate rate to reduce incentives for income splitting and tax-driven structuring.

Similar to most bodies, companies and individuals within the industry, Pitcher Partners proposed GST reform in the sense of broadening the GST base and increasing the rate to enhance revenue stability and reduce dependence on income taxes.

Kokkinos said Australia’s GST base was among the narrowest in the OECD, excluding essential categories like fresh food, education and health.

“Broadening the base and increasing the rate could enhance revenue stability and reduce dependence on income taxes.”

“This reform could coincide with targeted support for low-income households and align Australia’s consumption tax with global standards. Greater coordination between States of GST, including revenue and housing measures, could also reduce red tape and encourage investment.”