“The federal government should seize the momentum on tax reform to put forward a comprehensive package that brings the whole community along and delivers a tax system that works for all Australians,” Business Council of Australia Chief Executive Jennifer Westacott said.
Releasing the Business Council’s initial submission to the tax white paper process Ms Westacott said: “If we are to create a stronger and more resilient economy we need businesses to invest, flourish and create more jobs but our tax system is holding us back.
“Our submission outlines seven key directions for tax reform, highlighting the task should not be about increasing the overall tax burden to plug holes in a broken system, but about how we can support a growing economy, investment and more jobs, and a secure social safety net.
“The lesson from the Henry review is that comprehensive tax reform will fail unless the process is transparent and involves the community in considering all the options so they are brought along with and involved in a genuine process for change.
“The commitment of political leaders recently to embrace tax reform is welcome, but looking at the GST or Medicare levy in isolation is no substitute for the broader actions that will be required to fix the tax system properly.
“The case for comprehensive tax reform is urgent and compelling – we are falling behind the world and doing nothing is no longer an option. The costs are already large and without action will only build over time with consequences for future generations of Australians,” she said.
The Business Council’s seven key directions for rebalancing the tax system are:
• An income tax system that better rewards effort including reducing reliance on personal income tax through re-benchmarking personal income tax rates.
• A more competitive business environment including reducing the company tax rate to 25 per cent.
• Greater use of a more efficient GST including broadening its base and increasing its rate.
• Transitioning away from highly inefficient and volatile state taxes.
• Encouraging efficient savings through moving to more neutral, concessional treatment of savings.
• A simpler tax system to reduce the compliance burden.
• Redesigning government programs to reduce spending growth and repair the budget and using user charges where appropriate to replace general taxation.
All these changes can be made while maintaining equity through compensation, redesigning programs to be better targeted and to reduce spending growth, and phasing implementation over 10 years.
“The facts of our declining competitiveness are clear. Australia’s productivity growth has slumped from seventh in the G20 to 16th in a decade, our competitiveness is down from 16th in 2006 to 22nd last year, and we haven’t improved our innovation ranking in seven years,” Ms Westacott said.
“Rather than supporting a growing economy, the tax system discourages investment, risk-taking and wealth creation in Australia. It’s far too complex and is facing major structural challenges including from globalisation and digitisation.
“Our uncompetitive company tax rate is now a national concern discouraging investment and job creation, with our company tax rate of 30 per cent way out of step with an OECD average of 25 per cent, and an average of 22 per cent in the Asian region.
“The United Kingdom is lowering its company tax from 20 per cent to 18 per cent by 2020, and many other countries are moving in the same direction because they know that lower and more competitive company taxes lead to more investment, more jobs and over time higher wages.
“Private business investment has slowed, and non-mining investment is at its lowest point in more than half a century at 4.3 per cent of GDP. Without money and investment flowing in Australia from around the world our ability to create more jobs is eroded and we are less able to create the revenue needed to sustain our way of life and ageing population.
“Australia relies more heavily on personal income and company tax than other OECD countries – contributing 47 per cent and 20 per cent of total Commonwealth tax revenues - and because company taxes fluctuate with the economy, our revenue base is prone to volatility.
“The over reliance on these taxes is a disincentive to work, save and invest.
“At the same time, more Australians are moving into higher tax brackets as a result of inflation and wage increases, including 43 per cent of taxpayers who will move into the top two tax brackets within a decade.
“Bracket creep disproportionately affects people on lower incomes, for example an individual on $40,000 a year will pay a quarter more tax in four years’ time because of bracket creep alone, and an individual on $150,000 a year will pay 11 per cent more tax in four years.
“And the traditional tax base is under threat from changes in how we make, buy and sell things which are being accelerated by globalisation and rapid digitisation.
“While other countries have taken steps to fix their tax systems in the past decade in response to similar challenges Australia has stood dangerously still.
“Tax reform must be part of a broader process aimed at reducing growth in public spending, and improving the efficiency of government program delivery because otherwise any tax reforms we implement will be chasing unsustainable spending and there will no net benefit to the community.
“Ultimately, the goal of tax reform has to be about growing the economy, because it is only through a growing economy which supports greater investment, innovation and improved productivity that we will be able to take control of our challenges and build a more resilient and agile economy.”