Only a few years ago, the future of tax policy seemed clear to all. The rhetoric, and to some extent the reality, of tax policy were dominated by the image of “levelling the playing field”, and the much-touted phenomenon of “globalisation” was taken to mean that the field was likely to be levelled somewhere close to a common denominator. Governments were no longer growing, the “welfare state” was increasingly seen as obsolete, and only the occasional out-of-touch crank seemed at all concerned about the redistributive consequences of reducing taxes on wealth and high incomes.

The purpose of this paper is to pose one question — should the Australian income tax system of the twenty-first century belong to the descendants of Henry Simons or to those of Frank Ramsey? Put another way, my topic is whether future tax policy should continue to be framed according to notions of comprehensive income tax or, instead,should be directed towards the goal of an optimal income tax.

There is agreement that the tax law is very complex and needs improvement. At that level of generality it is not easy to attract an argument. However once one cuts below that layer of broad agreement there has not been the same level of understanding or concord on what can be done to put things right.It is good to see positive signs that these issues deserve serious public debate so that we can reach common ground on what is achievable by the Tax Law Improvement Project.

The effectiveness of the tax system is crucial to the funding of government. The tax administration is given exceptional powers to enable it to enforce tax laws and thus achieve revenue outcomes acceptable to government. The performance of the tax administration affects the efficiency of the national economy. But though it is crucial to the functioning of government and the economy and though it raises major questions as to the application of public law values, tax administration has not been a major field of study for lawyers. However, that may be changing and, co-incidentally, substantial governmental reviews of tax administration in Australia and New Zealand have recently been published. For ease of reference they will be referred to as the Australian Report and the New Zealand Report respectively.

This paper asks whether much State taxation is currently avoiding proper constitutional scrutiny, including the issue of its compliance with s 90 of the Commonwealth Constitution. That provision gives sole power to the Commonwealth to levy duties of customs and excise. The second part of the paper argues that the current interpretation of s 90 is in any event not capable of a sensible application to State laws.

The recent High Court decision of FCT v Peabody has raised once again the question of tax avoidance and how to deal with it. This article is a contribution to the discussion. The first part of the paper looks at the history of the judicial treatment of s 260, the old general anti-avoidance provision in the Income Tax Assessment Act 1936 (Cth) (the Assessment Act). There is then an analysis of Part IV A, s 260's bastard child, and the Peabody decision. I apply some of the historical lessons that come from the examination of s 260 to Part IV A. I am, if you like, looking back to look forward.

The exclusion of judicial review of assessment decisions by the Federal Commissioner of Taxation (the Commissioner) through the privative clause ins 177 of the Income Tax Assessment Act 1936 (Cth) (the Assessment Act) was challenged and found wanting in David Jones Finance Investments Pty Ltd and Adsteam Finance & Investments Pty Ltd v Federal Commissioner of Taxation (David Jones Finance). The decision has affected the interpretation of the effectiveness of the privative clause and has potentially opened up a new mechanism for appeaiing against decisions of the Commissioner.