The Australian Financial Review
By Robert Milliner
Chief Executive Partner
Mallesons Stephen Jaques
Chairman, BCA Business Reform Task Force
Tax reform is never easy. It always seems to come down to judgements about winners and losers, business versus individuals, revenue versus expenditure.
As a society Australians tend to view tax as a negative issue. Paying tax is a bit like going to the dentist – you know you have to do it, there will probably be some pain, but you hope you will be better off for it after it is over.
From the government’s point of view, tax is often seen as a regulatory issue. You use tax to control certain behaviour. It is also, of course, the main source of revenue and as a result you guard it at all costs, never to allow any encroachment on it for fear of not being able to meet your expenditures.
But what if we changed our mindset on tax? What possibilities would we unlock if we saw tax as a fundamental underpinning for the success of reforms across all areas of the economy? Areas that will boost our economy’s ability to grow and remain competitive into the future, such as federal-state relations, workforce participation, infrastructure, innovation, education, or competition and trade?
This is the vision that the Business Council of Australia has for Australia’s tax system. Rather than seeing tax as a necessary burden, we must see it as an enabler of a new reform agenda.
There is a broad consensus that we need further reforms in the areas listed above if we are to lift Australia’s growth rate and achieve the vision agreed to at the Australia 2020 Summit: that Australia be among the top five nations in the world in terms of gross domestic product per capita, and the best place in the world to live and do business.
With these goals in mind, the BCA believes Treasury secretary Ken Henry’s review of the tax system should explore the impacts of tax across the economy and community, and the way those impacts relate to the risks and challenges Australia faces.
One of those emerging challenges is our ageing population, and the fact that Australia’s tax mix remains skewed towards income taxes. Another challenge is the fact that the current tax and benefits system is failing to deliver improved outcomes for some people in our community. Still another is the interaction between our tax system and the ability of Australian businesses to expand effectively into overseas markets.
It is now common business parlance to say that we are facing severe capacity constraints. Is the tax system helping us break through these? For example, is it an inhibitor to people returning to the workforce after a break? Do our current research and development settings genuinely contribute to innovation? Are there tax issues delaying infrastructure development?
The BCA believes that if we want to address issues such as these and support growth, productivity and social prosperity, then we need to take a serious look at the structures that underlie our entire tax system. And we can only do this if everything is on the table – including the GST. How can the review fundamentally address core issues such as the balance of taxes on work, investment and consumption without including the key consumption tax in its considerations?
How can the review contribute to the government’s broader reform goal of fixing the federation if it is not going to consider the scope for reforms to one of the key channels through which revenues are collected and transferred to the states?
If certain things are excluded from the review, then we must all acknowledge that the potential reform options, and the potential benefits to Australia’s economy and society, will be limited as a result.
We must take this once-in-a generation opportunity to put everything on the table for consideration.
As the BCA’s paper A Better Tax Return: Reconsidering the role of Australia’s tax system notes, getting the balance right, in terms of the amount of tax collected and the types of taxes imposed, is a key challenge for governments.
Without broader goals that can be clearly articulated and understood by all, reforms are too readily subject to the constraints of the electoral cycle, vested interests, and the needs of the next budget.
This in turn leads to piecemeal reform, lacking in the longer-term vision needed to achieve the core goals Australia set for itself at the 2020 Summit.