Tax in Need of Change

17 November 2005

By Katie Lahey
Chief Executive 
Business Council of Australia

Not since the late 1990s have we seen such widespread public debate about Australia’s tax regime and how we might create a better and fairer tax system.

Rarely a week goes by without some new plan or proposal for major tax reform being offered by politicians, peak groups and think-tanks.

While it might seem obvious to some, tax affects the decisions that we make regarding our jobs, our families and our businesses.

It determines how much pay we take home and how much we save or invest. If we run a business, large or small, it can mean the difference between a going concern or going under.

The last time we had a major public debate about tax reform was some seven years ago, ahead of the introduction of the GST.

While the GST had teething problems, it resulted in greater incentives for Australians to work, save and invest and a more competitive business environment.

Fast forward to 2005 and we are facing a whole new set of pressures on our tax system.

Early in the year the Business Council of Australia worked with its members – the chief executives of leading Australian companies – to identify the major barriers to our future competitiveness as an economy.

Our analysis highlighted that in a competitive global economy:

  • governments are vying with each other to attract skilled workers and investment
  • their tax systems are the most direct tool they have to compete to attract these two drivers of growth.

Our conclusion is that Australia’s tax system needs continual review and change to stay ahead of other countries in competition with us for jobs and investment.

In terms of personal tax, fundamental weaknesses in our tax system combine to limit the size, composition and quality of our workforce.

On the lower end of the income scale, Australia’s tax and welfare systems discourage those wishing to enter or return to the workforce.

At the higher end, rates of 47 per cent make it hard to win Australians back from higher-paying overseas markets and even harder to attract and retain skilled workers from offshore.

The picture for business is equally challenging.

Australia’s corporate tax burden is already becoming a significant point of competitive difference compared with economies around the world.
Measuring Australia’s competitiveness by its headline rate of 30 per cent is only half the equation. At 5.3 per cent of GDP, Australia’s corporate tax burden is the highest in the industrial world apart from Norway and Luxembourg.

Australia needs to respond to these challenges now to ensure that we not only lock in the benefits of past reform, but build on them to sustain strong growth and prosperity over the long term.

As recent history has shown, major tax reform can be successfully undertaken. As difficult and complex as reform is, it must be ongoing.
Politicians of differing persuasions may have different opinions on the shape of tax reform.

But it’s a positive sign they now agree this debate is vital for Australia’s future prosperity.



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