Federal Budget: A Good Start to Tax Reform

The BCA welcomed initiatives to enhance the competitiveness of Australia’s tax system in this year’s federal Budget, but more attention should have been focused on long-term structural reform to lock in current economic growth.

Specific changes to the tax system were positive, particularly personal tax changes and superannuation reform, both of which should provide added incentives to work and save.

Steps to improve transport networks and other infrastructure were also welcome.

However, more advantage should have been taken of the revenue windfall from current fiscal and economic conditions to set out a progressive program that enables Australia to stay ahead of its competition.

The BCA welcomed the government’s recognition that Australia needs a commitment to ongoing structural reform, and that it has adopted the BCA’s recommendation of a reduction in personal tax rates, as well as changes to tax thresholds.

But the new tax reform statement, while providing an excellent summary of past achievements, does little to lay out a strategic tax reform agenda beyond the forthcoming year.

“There is no better time than now for Australia to make the strategic decisions and investment needed for future growth,” BCA President, Michael Chaney, said.

“Many of the initiatives are sound responses to immediate pressures on our economy and it competitiveness, but over the next 12 months, it will be imperative to achieve greater progress toward more permanent, structural changes to the economy.

The BCA again reiterated its call for a more strategic approach to tax policy, rather than piecemeal changes aimed at playing catch-up.

Mr Chaney said without a competitive tax system to underpin the economy, individual tax breaks and spending initiatives announced in this or future Budgets may not be sustainable.

The Budget shows business tax receipts continue to climb, with forecasts that the total company tax take will again increase significantly to more than $56 billion next financial year – an increase of more than 50 per cent in the past three years.

“The question is whether this level of revenue growth can be continued, and spending at current rates sustained when the evidence points to the fact that important areas of our tax system – including Australia’s business tax regime – are becoming uncompetitive.

The business tax measures announced in this Budget are expected to provide business with a benefit of $4.2 billion over four years, when company tax revenues projected to grow by over $6 billion in the next 12 months alone. In 2006–07, the share of company tax revenues is projected to increase to 5.6 per cent of GDP, well above the OECD average.

“We all want to see the economy continue to grow strongly over the long term. At the same time, it would be very disappointing to look back and see this as a missed opportunity to lock in growth for the long term.”