By Katie Lahey
Business Council of Australia
Over the past 15 years, Australia’s uninterrupted economic growth and general prosperity have been the envy of the developed world. Yet we can easily forget that we remain a relatively small economy at a considerable distance from major markets. These twin disadvantages mean we will always have to run much harder than our competitors to stay ahead.
That explains the Business Council of Australia’s concern about the state of our business tax regime and the impact of its growing complexity on our competitiveness and our growth.
Tax competitiveness is a key factor in decisions companies make on where they will make new investments and create jobs. In the global economy, where countries are aggressively structuring their tax systems to attract a greater share of jobs and investment, Australia needs the most competitive, streamlined tax regime possible.
However, as a new report on Australia’s business tax regime by the BCA and the Corporate Tax Association shows, we seem to be a long way from that objective.
The report, Tax Nation: Business Taxes and the Federal–State Divide, sets out to illustrates just how unwieldy the business tax regime has become, and the potential for it to become a major barrier to growth and investment.
This is not just an issue for large businesses. The problems of growing complexity, overlap and the compliance burden highlighted in the report are compounded for small and medium-sized businesses with fewer resources to deal with these issues.
The findings, based on a survey of nearly 100 of Australia’s top companies, show that Australia’s business tax system levies 56 different federal, state and local taxes. This compares with Britain where, in an economy three times the size of Australia’s, businesses pay only 22 different types of taxes, or less than half the number paid in Australia.
Many of Australia’s business taxes involve considerable compliance costs, yet they seem to raise comparatively little revenue for governments. The report finds that $18.1 billion of the $27.5 billion in taxes directly borne by the 92 companies surveyed was paid to Canberra as part of corporate income tax. However, the remaining $9.4 billion was paid through 50 other separate business taxes. These include 35 state and local taxes, which raised just $4.7 billion (or 17 per cent) of all business tax revenue.
In addition to the taxes they paid, the survey found that the 92 businesses collected a further $37 billion for governments from other taxpayers, through excises, personal income tax (PAYG) and GST.
Such is the complexity and duplication in the tax system that companies are spending as much as $10 million a year on tax compliance costs. The report also highlights that the $27.5 billion in tax paid to Australian governments by the 92 businesses surveyed is the equivalent of all federal and state government spending on Australia’s schools system.
The sheer scale of the tax contribution by a relatively small number of large businesses highlights the critical importance of keeping Australia’s business tax system globally competitive and highly efficient. Yet, overall, the Tax Nation report finds that our dysfunctional federal-state system manifests itself in a tax regime that is often overlapping and duplicated. This in turn creates significant wastage of business resources; resources that could be much better directed at growth.
Certainly, business in this country recognises that Australia has engaged in several important business tax reforms over the last decade. In particular, the introduction of the GST – publicly supported by both the BCA and the CTA – has been considered a significant foundation for the recent economic growth.
However, business is concerned that agreements, particularly by the states, to streamline the business tax system following the GST’s introduction have changed, have stalled or have not been acted on. Instead, we continue to see the overall number of taxes growing, increasing the burden on business.
Instead of going backwards, tax reform must be a continuing process if Australia is to maintain its competitiveness in a global business environment that is fast moving and rapidly changing.
So, what is to be done? Business acknowledges the difficulties of achieving real reform in the tax systems of our federal and state governments. The recent meeting of federal and state treasurers highlighted the difficulties involved with even raising the prospect of adjusting tax structures, let alone agreeing to and implementing changes.
But it is clear from the findings of the Tax Nation report that the current system cannot continue as it is if Australia is to sustain long-term prosperity.
The report calls for the overall issue of federal–state business tax arrangements to be subject to a comprehensive review by the Productivity Commission. As an organisation with a well-deserved reputation as an impartial assessor of policy and a strong emphasis on improving the international competitiveness of Australian industry, the Productivity Commission is the appropriate body to undertake such a wide-ranging review and provide recommendations.
Business has highlighted a compelling case for a major rethink of Australia’s business taxation system. If, in an election year, our political parties are serious about prosperity and economic growth, committing to a road-map for federal–state tax reform should be a top priority.