Australia needs to move to a more modern, sensible mix of taxes that will best promote the wellbeing of the Australian community and support the creation of jobs for the future. It’s not about one tax. It’s about the combination of taxes and the capacity of the overall tax system to influence decisions that will achieve the goal of growing the economy and creating jobs. For example, any changes to the GST should only be considered against the backdrop of broader-based tax reform and not in isolation. Any changes to the taxation of superannuation, for example, must be consistent with the objectives of retirement income policy: reducing reliance on the age pension and providing comfortable retirement incomes.

The overarching objective of tax reform over the medium term must be to redesign and improve the tax system by shifting from less efficient taxes to more efficient ones, so that the average economic burden of raising each dollar of revenue falls. This requires a tax package that overall reduces the tax burden on investment, working and other highly valuable and productive activities.

While a tax system that promotes economic growth must be the primary objective of reform, the tax system as a whole must also be equitable, have integrity, provide a stable revenue base and be as simple as possible.

  • Progressively move all businesses to a company tax rate of 25 per cent to remove the distortion and complexity of a two-tier tax rate in the system.
  • Introduce a broad-based investment allowance to incentivise companies to continue investing, particularly in the non-mining sector. This would also include energy projects.
  • There are a number of business tax measures that are critical to the competitiveness of the tax system, such as interest deductibility, dividend imputation and accelerated depreciation. These measures should be retained because, if removed, they would reduce investment and erode the competitiveness of trade-exposed, capital intensive sectors.
  • Maintain the R&D Tax Incentive Scheme to encourage innovation across enterprises while reducing administrative costs and complexity. It is imperative that changes to the R&D Tax Incentive do not discourage R&D from being undertaken in Australia, especially at a time when Australia’s R&D effort has weakened.
  • The Business Council believes companies must meet their tax obligations and where arrangements do not keep pace with community norms, they should be reviewed.
  • Companies should adopt the voluntary Tax Transparency Code to help educate the public about their compliance with Australia’s tax laws.
  • Australia should continue to progress tax integrity reforms through the OECD. The international community is the appropriate forum in which to agree on multilateral action on how to tax the global profits of multinational companies. Consultation on the implementation of the OECD’s recommendations is vital to ensure investment and competitiveness are not compromised.
  • Recent company tax integrity measures include:
    • the introduction of country-by-country reporting
    • the Multinational Anti-Avoidance Law
    • the Diverted Profits Tax
    • changes to hybrid and transfer pricing rules
    • the establishment of the Tax Avoidance Taskforce in the Australian Taxation Office
    • a doubling of penalties that apply to large companies that engage in tax avoidance
    • public disclosure of the tax information of large companies
    • the Tax Transparency Code
    • improved whistleblower protection
    • and, a hundredfold increase in penalties for large companies which do not adhere to tax disclosure obligations.
  • Simplify the tax thresholds to remove the disincentives that discourage workers from entering the workforce, doing a few extra hours or working in Australia.
    • The additional hours or extra pay can bump workers into a higher tax threshold where they must pay a higher rate of tax on their earnings.
    • The amount of additional tax workers face in a higher tax bracket eats into any extra money they stood to gain from working harder or receiving a marginally higher income.
  • Progress administrative simplification of the tax system to reduce the time, effort and cost to taxpayers.
  • Improve personal tax integrity and simplicity through targeted changes to tighten the scope of work-related expenses.
  • Streamline and tighten Fringe Benefits Tax rules.
  • Tax policy should not distort investment decisions – more neutral and fairer treatment of all savings is needed.
  • The dual purpose of the retirement income system should be to provide for comfortable living standards during retirement, and to reduce reliance on the age pension.
  • The tax treatment of superannuation and other savings income should be consistent, while acknowledging that superannuation is a much less flexible form of saving.
  • Embark on a holistic review of the retirement income system and tax treatment of all savings income. Changes to negative gearing and capital gains tax should only be considered in the context of longer-term changes to establish more consistent concessional taxation of all savings income.
  • Reduce reliance on volatile state taxes over time.
  • Harmonise state land and payroll tax bases as the first step to a more efficient state tax system, and abolish insurance levy taxes.
  • Longer term, the aim should be to broaden the base of both land and payroll taxes with carefully managed implementation over a long transition.
  • Broader bases of the most efficient state taxes would enable governments to gradually reduce reliance on distortive stamp duties. These could eventually be phased out completely.
  • Remove obvious and unnecessary duplication between the Commonwealth and states, particularly in the areas of chronic disease, housing, and mental health.
  • Introduce a new system of National Productivity Payments to the states and territories to progress reforms.
  • Support recent changes to the GST distribution formula.
  • The revenue-sharing arrangements among the states and territories should be changed by moving to an equal per capita distribution of the GST. This would be done progressively over time with a floor placed on distributions to recipient states.