The West Australian


By Michael Chaney
President
Business Council of Australia


Last month, the Business Council of Australia issued a call for the country’s tax system to be kept under ”permanent watch”.

Why?

After all, it seems like only yesterday that the tax system was the subject of major review, debate and reform with the introduction of the GST.

The reality, however, is that Australia operates in an increasingly competitive global world and as a result, tax reform will always be work in progress.

This is because governments around the world are aggressively reviewing and changing their tax structures to make them as competitive as possible.

They are doing this to attract more investment and skilled workers, and in turn promote greater prosperity and growth.

Given the fast rate of tax changes among Australia’s global competitors, what is uncompetitive now in our system will become – without reform action – even more uncompetitive in a short space of time.

Similarly, what appears competitive now can quickly fall behind, without constant review and change.

In Australia, two decades of good policy and economic management that have anticipated and responded to challenges and barriers to growth have enabled us to get where we are today.

Australia has recorded 14 years of consecutive economic expansion. Unemployment is at or near record lows, and individual prosperity at record highs.

The Federal Government has moved to lock in our prosperity with much-needed changes to workplace relations.

In recent months, Federal and State Governments have committed to national reforms involving cutting red tape and improving infrastructure planning, both of which will enhance growth prospects.

But the BCA, along with several other groups, remains concerned that Australia has no overarching plan or vision for one of the most important parts of the growth equation – taxation.

While there have been some important changes in recent years, these have been piecemeal rather than part of a broader plan.

What is needed is a complete review of the taxation system – at Federal and State levels – and an overarching plan that eliminates disincentives and encourages higher productivity; and this has to be an ongoing process.

To its credit, the Federal Government recently undertook a tax benchmarking study aimed at comparing Australia’s tax competitiveness with our international peers.

The report confirmed the BCA’s concerns that the overall tax burden on Australian business was the third highest among developed countries – a potential major barrier to new investment and business growth.

Our upper income tax rates are either comparatively too high or cut in too early or both – a disincentive to attracting and keeping skilled workers.

As the BCA and others have argued in recent months, the May Federal Budget is a real opportunity to address the immediate problems that were identified by the Government’s tax benchmarking review, and to begin a process of continuous improvement of the system.

Business recognises that tax reform is not easy.

It also recognises that State Governments also have an important role in undertaking major reform of their tax base

Certainly, as politicians have been quick to note, the public prefers tax cuts to tax reform.

But with education and a proper debate, the public is more likely to support, or at least accept, policies that underpin Australia’s future growth, which in turn will make it easier to fund new challenges such as rising health and pension costs in an ageing population.

With booming tax receipts and a strong economy, there is no better time than the May 9 Budget to start to make tax reform decisions that will play a big part in locking in Australia’s prosperity for the long term.