This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia, on the BCA's intial submission to the tax white paper process, was published in The Daily Telegraph on 6 August 2015 under the title 'It’s a taxing task to get the balance right.'
When Premier Mike Baird recently said tax reform was essential for our future, a lot of people probably wondered why — and what did it all mean for them.
Tax reform is just code for making people pay more tax, right? Wrong. Tax reform done properly is not about increasing the overall tax burden, but about creating the conditions for the economy to grow, for jobs to be created, for people and businesses to get ahead.
A better tax system that will grow the size of the pie by growing the economy is also a key to paying for a good health system and our social safety net.
But If all we do is put the GST or the Medicare levy up, we are simply using a tax rise to paper over holes in a broken system. The community is no better off for that change.
What we need is a tax system that works for all of us by helping our companies to be more competitive so they can invest and create jobs, by rewarding hard work and entrepreneurialism so people can prosper, and by ensuring we can afford health, education and the social safety net.
Australia’s productivity growth — the main driver of higher real incomes — has slumped from seventh in the G20 to 16th in a decade, our competitiveness is down from 16th in 2006 to 22nd last year, and we haven’t improved our innovation ranking.
Our uncompetitive company tax rate is now a national concern, discouraging investment and job creation.
Our company tax rate of 30 per cent is way out of step with an OECD average of 25 per cent, and an average of 22 per cent in the Asian region.
The UK is lowering its company tax from 20 per cent to 18 per cent by 2020, and many other countries are moving in the same direction because they know that lower and more competitive company taxes lead to more investment, more jobs and higher wages.
We know that more and more start-ups and new business investments are going overseas — and who could blame them when the investor has a choice between a 30 per cent company tax rate in Australia or a 20 per cent rate in the United Kingdom?
It’s a no brainer. And it’s not good for jobs.
Tax reform matters for every taxpayer because personal income taxes are eating up our wages more every year.
This is what is referred to as bracket creep, where inflation and wage rises over time push people into higher tax brackets. And it hurts people on lower incomes more.
For example, a person earning $150,000 a year will pay 11 per cent more tax in three years if the government doesn’t give income tax relief, but a person earning $40,000 will have to pay a quarter more tax in the same period if nothing is done about bracket creep.
The other reason we need tax reform is because our ability to pay for the ballooning costs of health will be even worse without comprehensive change to make our tax system more reliable.
Commodity prices have become the canary in the mine signalling the health of federal budget revenues.
Surges and falls in house prices expose state revenue to huge volatility through stamp duties on property sales.
And more and more people are making purchases over the internet, cutting further into the amount of tax revenue the government receives.
So we need a better balance of income taxes and consumption taxes so that our tax revenue is more stable, and our tax system raises the money it should.
Yes this means we will have to look at raising the GST and broadening its application to more areas than it covers now, but only as part of a comprehensive package that makes businesses more competitive, makes it easier for individual taxpayers to get ahead, and includes compensation for disadvantaged groups.