The Business Council of Australia (BCA) has released a paper today that sets out a path for transforming the tax system to improve the living standards of all Australians by supporting economic transition and accelerating growth.
Releasing the paper, Realising Our Full Potential: Tax Directions for a Transitioning Economy, at a CEDA event today in Sydney, BCA President Catherine Livingstone said the current tax system was not conducive to innovation and economic growth because it was established for a different economy and a different world.
“Australia is talking about the tax system because it is one controllable factor in a volatile, unpredictable global economy,” said Ms Livingstone.
“Taxation can either accelerate or impede growth – in our case it is increasingly an impediment with an unsustainably high personal income tax burden and an uncompetitive company income tax rate.”
The BCA paper outlines a staged approach based on three horizons of adjustment, covering:
- Lowering personal income tax rates, with an initial focus on low and middle income taxpayers affected by bracket creep;
- Reducing the company income tax rate, immediately to 28.5 per cent, to harmonise the rate for all businesses, and then to 25 per cent over the next five years;
- Replacing inefficient state taxes by switching from stamp duties to land taxes, and harmonising payroll taxes;
- Simplifying the tax system to reduce the compliance burden; and
- Robust, fit-for-purpose integrity measures.
“We support the need to address multinational tax issues, but to use this to characterise all companies as underpaying their tax is disingenuous at best, and potentially very damaging,” said Ms Livingstone.
“If we allow it to obscure the importance of making our rate of corporate tax more internationally competitive, the result will be a lost opportunity to provide the nation with a growth dividend.
“If our approach is adopted we estimate that in around a decade the Australian economy could be $9 billion bigger from the benefit of a lower company tax rate, and Budget revenues could be $2 billion higher.”
The BCA paper outlines options to fund structural changes but warns that adjustments to tax arrangements, including superannuation and negative gearing, must focus on improving their design and accelerating economic growth, not finding revenue for additional government spending.
Ms Livingstone said: “The purpose of tax reform is to accelerate economic growth, not to raise the overall tax burden to pay for more spending. At the same time we must get the rate of spending growth under control otherwise any gains we make on the revenue side will be eroded by expenditure.
“We have no choice but to face up to the deficit challenge. It’s compromising our capacity to pay for the services people need today, and our capacity to make investments at the national level which will underpin future national wealth generation.
“To choose not to embark on a process of restructuring the tax system and fiscal policy in the way we and many others are suggesting is akin to the then former Treasury Secretary Martin Parkinson’s warning about ‘sleepwalking’ our way into lower living standards.
“Good process can provide strong protection for governments in tackling tough choices. Big decisions should not be rushed, and the government must be allowed to work through the options carefully and systematically.