This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia was published in The Daily Telegraph on 9 March 2016.
Many Australians feel like they are working harder than ever before but not seeing the results of their efforts.
They feel like their wages aren’t keeping up with the rising cost of living.
As they look at a rapidly changing world, they worry too about whether Australia is keeping pace in the international environment, whether we will be able to rise to the economic challenges we face, and whether their children and grandchildren will enjoy the same quality of life that they did.
The truth is, the concerns Australians are feeling are very real.
Our economy is not growing as fast as it could – and that has serious implications for the number of jobs that are created (and the quality of those jobs), the wages we might earn, and the living standards we all enjoy. It has also fuelled the concerns voiced by state and territory governments about how they will pay for essential services and infrastructure like roads, schools and hospitals.
That is why the Business Council of Australia is committed to encouraging us all to think seriously about tax reform. Only real tax reform – that is, reform that is not stymied by political point-scoring or scaremongering – can deliver the real economic growth Australia needs to continue to be competitive in an increasingly volatile international environment.
Along with the rest of the world, the Australian economy is undergoing significant changes, and the dimensions of our future economic growth will be different and new.
Time and again, Australians have proven they can rise to a challenge. This challenge is no different. Our proximity to the rapidly growing Asian markets, our highly educated population and abundant natural resources put Australia in an extraordinarily strong position to make a successful transition.
But our economy is not going to transition to a new one by itself. We must give innovative and hardworking Australians the best chance to adapt to this new environment, to rise to the challenges and make the most of the opportunities.
Put simply, you can’t have a new economy and new jobs with an old tax system.
Our outdated tax arrangements are holding Australia back because they are holding back people and businesses from achieving their full potential:
- When a person considers getting a new job or takes on additional work, they face high marginal tax rates;
- When a person gets a pay rise to keep up with cost of living increases they end up worse off because of higher taxes;
- When a company is considering a new investment in Australia it compares our uncompetitive rates with other countries where it is easier to invest and do business.
To allow our economy to transition successfully, we need to lower personal income taxes to encourage people to participate in the workforce, make an effort and be entrepreneurial. We also need a lower rate of company tax so that businesses are encouraged to invest, innovate and create jobs in Australia.
The potential rewards for all Australians are compelling. If our approach is adopted, we estimate that within a decade the Australian economy could be $9 billion bigger, from the lower company tax rate alone, and there could be 50,000 more jobs.
We will have significantly slowed the number of Australian taxpayers tipping into higher tax brackets through inflation (“bracket creep”).
Australia will be better able to compete with other countries for investment and innovation. We will be a more attractive destination for global companies to do business, creating more jobs, and bringing new technology, and new goods and services to consumers.
If our economy can return to the rate of 3.5 per cent average annual GDP growth Australia has experienced over the last 55 years, in 40 years’ time it will be $1.5 trillion dollars bigger than it will be if we stay on the projected, weaker growth trajectory.
Doing nothing on tax is not an option because the tax system affects so many decisions that influence how quickly we can grow the economy in this challenging new world.
Real growth needs real tax reform.