By Katie Lahey
Business Council of Australia
Latest Treasury figures this week showing company tax receipts continuing to climb and underpinning yet another healthy surplus might suggest this is as good as it gets for Australian business and the wider economy.
In regard to Australia’s business tax system, with the business environment clearly so strong and tax revenues so high, there may be a temptation to think there is little need for further reform.
The opposite is the case.
Rather than signalling Australia has reached a high-water mark of prosperity, these figures underscore the need to keep moving forward on reform, rather than opting for complacency.
The growing dependence of governments on strong business tax receipts to fund new and expanded social and community programs highlights not just the economic, but also the public interest case of keeping our business tax system as world competitive as possible.
As globalisation quickens the pace at which capital and labour move, we need constant attentiveness to ensure our tax structures are at least in line with, or preferably more attractive than, those offered by the countries we compete with in terms of productivity, investment and ultimately jobs.
The real risk in failing to keep pace with our competitors on our business tax system is that the significant community and economic dividends we are currently enjoying as a result of strong company performance will be quickly eroded. In apparent recognition of this, the BCA is pleased to see both political parties indicate a strong appetite for further tax reform as we head towards the election.
However, we’re concerned with the assumption implicit in the current debate that “tax reform” simply equates to “tax cuts” and that tax cuts, in turn, are the only way to reduce the tax burden on business and other tax payers.
If we are serious about developing a clear road map for passing on prosperity, we need to be much more strategic.
Reducing headline tax rates helps. But to sustain Australia’s tax competitiveness in the longer term, we need to look carefully at the entire structure of our taxation system.
This review process should not be a series of one-off changes, driven by immediate political or economic concerns.
Central to genuine tax reform is a comprehensive and transparent review process that looks at the business tax system in its entirety, and on a regular basis.
This means that commitment to genuine tax reform at a federal level also needs to consider the business taxes imposed by the states and territories as well. It is clear from debate in recent days that the total tax burden on business in Australia, and the spread, cost and complexity associated with that burden, remains poorly understood.
As the BCA’s recent Tax Nation report shows, for every dollar large businesses pay in corporate income tax, they pay a further 50 cents in other business taxes.
And that is just the direct tax burden: on top of that, businesses face additional compliance costs, administrative burdens, and risks associated with negotiating the maze that is our current tax regime, as well as collecting an additional $1.35 on behalf of governments around the country.
As the Tax Nation report highlighted, there are 56 taxes levied by governments at all levels that potentially apply to business.
These sorts of numbers make it clear that the business tax burden is much broader than it first appears.
While the direct burden on large business from these imposts is clearly large, they’re even greater for Australia’s small businesses that have far fewer resources and expertise to devote to complex and unnecessary compliance obligations.
Merely cutting the headline corporate tax rate, while welcome and clearly a benefit to business, would not address any of these broader issues.
As outlined above, the growing tax and administrative burden comes as the business tax take is becoming increasingly important to the capacity of governments to maintain healthy surpluses, and fund a range of community and social programs.
The BCA’s Tax Nation research conducted with the Corporate Tax Association and PricewaterhouseCoopers, showed that just 92 businesses directly paid almost $28 billion in taxes to Australian governments and were responsible for collecting and administering an additional $37 billion.
Business acknowledges real, strategic tax reform over and above tax cuts is politically difficult.
During the 1980s and late ’90s, Australia engaged in a number of vitally important tax reforms that created significant public and political debate.
The introduction of a capital gains tax and a goods and services tax, to highlight two examples, were among the most hotly contested political and public issues of their day.
But they were important reforms that contributed to a tax system that is better aligned with the modern business environment, a system that has helped consolidate the prosperity we enjoy now.
In a global environment in which the competitiveness of economies can and do quickly change, we should not forget that it is now almost 10 years since the last significant tax reform process was begun.
Ensuring that the policy environment supports and enables the ongoing productivity, competitiveness and growth of business should therefore be a fundamental reform goal.
Towards that end, tax reform must be framed within the context of policies that allow business to respond quickly and effectively to changing market opportunities, new technologies and production processes as well as support measured risk-taking and innovation.
We acknowledge that several state governments have begun their own business tax review processes, most recently NSW.
But the reality is that most modern businesses operate across state borders.
Australia’s largest businesses are increasingly the international face of the Australian economy.
With advances in technology, even small home-based businesses now have the capability to operate across Australia and around the world.
If we’re committed to bringing our taxation system up to speed, we need to start thinking like a unified nation. We need a more structural approach to potential business tax reform that addresses all these issues in a holistic manner.
That’s why the BCA has been calling for a comprehensive and ongoing approach to tax reform, starting with a Productivity Commission review, of all business taxes, at all levels of government.