By Katie Lahey
Business Council of Australia
IT seems like yesterday we were in the midst of what was then described as the biggest ever tax debate in decades – over the GST.
So why all the noise about more tax reform now?
In answering that question, it's worth reminding ourselves why the tax system has a vital influence for Australia's future prosperity –and why tax reform will always be a work in progress.
In Australia, one out of every three dollars earned by the nation is consumed and recycled by the tax system to pay for government wages and programs.
The system has the widest of reaches. It taxes incomes, spending, savings, wealth and investment. Good tax policy has a positive influence on how much and how hard we work or whether we work at all, as well as how much we save or invest.
Bad or outmoded tax policy spreads its way through the economy like a worm in an apple and takes the form of declining business competitiveness, less new investment and jobs and fewer incentives to work or save.
That is why the system, as the Business Council of Australia and others have argued, is too fundamental to the future of the nation not to keep it under permanent watch.
Both the Prime Minister and the Treasurer are right in saying the person in the street has little interest in tax reform.
Yes, Australians are more interested in tax cuts. But does this justify the case for no more reform or does it point to deeper problems with the system?
Is it any wonder many Australians feel remote from a tax system when its growing complexity often makes the basic details - let alone the big picture - immune to a common understanding?
For example, the number of Tax Act pages has increased from 3500 to nearly 10,000 since 1996. Recently, the Government announced it was removing numerous clauses in the Act that are rarely or ever used. But that's unlikely to make much difference to the 80 per cent of Australian taxpayers who now have to pay a tax expert to fill out their annual assessment.
What we need in the Federal Budget on May 9 is a comprehensive plan of action to address immediate problems with the system, as well as a longer-term plan for reform to make sure the system helps to secure Australia's future prosperity, not hinder it.
The recent review into the competitiveness of Australia's tax system commissioned by the Treasurer and released this month underlined the extent of problems with the present system that, sooner or later, will impact on the economy. It found the overall tax burden on Australian business was the third-highest among developed countries – a potential major barrier to new investment and business growth.
Our upper-income tax rates are either comparatively too high or cut in too early, or both – a disincentive to attracting and keeping skilled workers.
These are just some examples (not to mention the system's growing complexity) of flaws and gaps in the tax system that will inevitably penalise future sources of growth, jobs and investment. This at a time when governments around the world are proactively reviewing and changing tax structures to attract more investment and skilled workers.
To give the Federal Government its due, seeking to compare the competitiveness of the tax system with the rest of the world is an important departure from the usual ad hoc approach to tax policy. The real challenge is to act on these problems.
With tax take at record highs and a strong economy affording us an unprecedented capacity to invest in the future, there is no better time than next month's Budget to keep tax reform moving forward.
- Business and the community are being burdened by excessive red-tape costs.
- Regulations often overlap, are poorly thought through, unco-ordinated and are not subject to any meaningful cost impact review.
- In an audit of government regulation-making, the BCA found that federal and state governments were adding more than 30,000 pages of new laws and regulations a year.
- The BCA welcomes moves by the Federal Government to address over-regulation, but would like to see a national commitment to red-tape reform (as agreed by the Council of Australian Governments in February) put into practice by all jurisdictions.
- The BCA intends to develop a red-tape scorecard to monitor the Federal Government's progress and the response of the states.