The Business Council of Australia has identified the Council of Australian Governments (COAG) meeting next month and the federal Budget in May as the litmus tests for reform action, saying Australia could not afford to pass up either opportunity to commit to a broad-based reform program.

Identifying 2006 as the year for reform action, the BCA’s Benchmarking Reform Action and Budget Submission 2006–07 released today said opportunities for federal and state governments to commit to major economic reform beyond these two forums were limited.

These are the two most important forums for reform in many years.

The last 12 months have seen a significant consensus emerge around the imperative for a new reform program for Australia. There have also been major reform initiatives, particularly in workplace relations, and these are welcome.

But much more needs to be done, particularly on red tape, tax and infrastructure renewal.

With a number of elections on the horizon from the second half of this year, there is only a limited political window of opportunity for governments to commit to a truly broad-based reform program.

Business hopes and expects a major reform program and timetable to implement reform will result from both forums.

It is also concerned that if little progress is made in 2006, it will be several years before the opportunity to progress major reform arises again.

The Benchmarking Reform Action and Budget Submission 2006–07 evaluates why a broad-based reform agenda remains even more important, given the barriers and imbalances in the Australian economy.

These include declining productivity, an over-reliance on the current commodity boom, and rising oil prices, all of which continue to pose risks to sustained growth.

There could be no excuses if the opportunity presented for major reform in 2006 was missed. Failing to address these structural imbalances and underlying barriers to growth will make what are inevitable reforms more difficult and less palatable.

February COAG Meeting: Red Tape Reform and Infrastructure Renewal

The submission acknowledges that platforms for reform have been assembled in important areas.

In particular, the BCA welcomes the agreement by COAG, Australia’s only cross-jurisdictional policy-making agency, to pursue a program of National Competition Policy (NCP) reform, particularly in improving infrastructure planning and development, and red tape reform.

The submission outlines what the BCA expects to be achieved at the COAG meeting next month in both areas in order to constitute real reform. On red tape reform, this includes:

• The development of clear objectives and timelines to address the issue of regulatory overlap between different levels of government.
• Collective agreement to reduce the regulatory burden on Australian business and to commit to a joint reduction program.
• Agreement on a program of clear incentives and penalties based on the performance of governments in reducing their respective regulatory burdens.

On infrastructure reform, COAG will be expected to outline a broad national infrastructure reform agenda that:

• Specifies roles and responsibilities for infrastructure renewal across all levels of government.
• Establishes specific plans and timetables with firm targets for action.
• Creates robust mechanisms, potentially through NCP arrangements, to encourage implementation and prevent backsliding.
• Establishes a State of the Nation Infrastructure Audit to be conducted every two years by the Productivity Commission.

2006 Federal Budget: Major Tax Reform

The federal Budget is the chief mechanism for the implementation of major fiscal and policy programs including in the four key areas of reform nominated by the BCA. The publication notes that of the four areas of economic reform identified by the BCA, tax reform has lagged.

Despite bipartisan consensus that major tax reform is imperative to keep our economy competitive, the submission argues that poor Budget forecasting and inadequate cost analysis has been mainly responsible for little or no progress in this area in recent times including in the past 12 months.

It also calls for an improved system of revenue forecasting and cost–benefit analysis by Treasury that would provide the basis for a more strategic approach to tax reform. In addition to these changes, it calls for major review and reform of:

• Personal tax rates, not just thresholds.
• A major review of Australia’s growing corporate tax burden.
• Reforms to Effective Marginal Tax Rates to remove barriers to greater workforce participation.
• A concerted program to cut the number of tax laws and simplify the tax system. 

Benchmarking Reform Action and Budget Submission 2006–07