Limiting the scope of the federal government’s tax reform process reduces the opportunity for Australia to become the world’s top place to live and do business, Business Council of Australia President Greig Gailey says.

Launching the BCA discussion paper, A Better Tax Return: Reconsidering the Role of Australia’s Tax System, Mr Gailey said Australians needed to rethink the role tax could play in underpinning the achievement of broader national reforms.

“Rather than seeing tax negatively, as a necessary burden, we need to change our mindset and view tax positively as an enabler of stronger growth and prosperity for all Australians,” Mr Gailey said.

“We must ask how tax can underpin better outcomes in areas of the economy that will boost our economic capacity such as workforce participation, infrastructure, education, regulation, competition, trade and innovation.
 
“If we want to deliver on Prime Minister Kevin Rudd’s vision for a ‘root and branch’ review of the tax system we need to put everything on the table, including the role of the GST and question whether tax reform really needs to be revenue neutral.

“History tells us that limiting the scope of tax reforms has stymied the potential benefits of those reforms. Past reviews have resulted in piecemeal tax reform that has left Australia always playing catch up to the rest of the world,” he said.

The discussion paper identifies key priorities for tax reform that will deliver on the BCA’s goal for lifting Australia’s living standards into the top five in the OECD by 2012, including:

• Contributing to economic growth and productivity.
• Supporting social prosperity.
• Enhancing our engagement with the global economy.
• Achieving simplicity and low compliance cost.
• Providing fiscal stability.

The paper is intended to stimulate discussion around how tax can enhance Australia’s economic and social progress, which will be used to inform the BCA’s submission to the Henry review later this year.

“As we know, Australia’s economy is severely capacity constrained and facing many challenges domestically and internationally,” Mr Gailey said.

“There is broad agreement among business, government and the community on the key components of a national reform agenda that will reposition Australia for stronger growth and competitiveness.

“That national reform agenda, including fixing dysfunctional federal state relations, improving infrastructure, lifting workforce participation and the quality of education, requires comprehensive solutions.

“The Australia 2020 Summit decided we should strive to be the world’s top place to live and do business. It also agreed we should set national economic goals such as full employment, low inflation, and a GDP per capita ranking in the top five countries in the world.

“The BCA supports these objectives, and tax reform has a critical role to play in achieving them – this was acknowledged by the Prime Minister when he announced a ‘root and branch’ review of the tax system following the summit.

“But already the scope of the Henry review has been limited, reducing the opportunity for the review to fully deliver on the Australia 2020 Summit vision.

“How can we fundamentally address core issues such as the balance of taxes on work, investment and consumption, without including the key consumption tax in our considerations?

“Not including the GST as part of a comprehensive review is all the more concerning given that demographic trends mean the proportion of income tax payers in our total population will decline in the years ahead.
 
“The review is also constrained by the assumption it will be revenue neutral. We believe the review should assess the scope for a sustained reduction in the overall tax burden and how this might be achieved.
 
“We must take this once in a generation opportunity to put everything on the table for consideration so that we can develop reforms that put Australia at the forefront of global competitiveness and ensure greater growth and prosperity.

“By reconsidering the role of tax in supporting economic and social progress we can open up a whole range of possibilities for reforms to deliver a stronger Australia,” he said.

A Better Tax Return: Reconsidering the Role of Australia’s Tax System