We Must Act Now on Tax Reform: Excerpt from BCA Budget Submission 2006–07

10 February 2006

The Age

Excerpt from BCA Budget Submission 2006–07

Over the past year, the Business Council of Australia has strongly advocated the need for further economic reform to lock in prosperity for the long term.

The companies represented by the BCA employ nearly a million Australians, generate $340 billion for the economy and produce 30 per cent of Australia’s exports.

As an organisation deeply involved in the Australian economy, the BCA has a major interest in developing and promoting policies that ensure the economy remains strong.

About 12 months ago, the BCA released its action plan for future prosperity and BCA Budget Submission 2005–06.

The document combined the BCA’s immediate priorities for the 2005–06 federal budget while identifying the four areas of economic reform required in the medium term to lock in strong, sustainable economic growth for Australia.

The four reform areas are:

  • Addressing the blow-out in costly and inefficient business regulation, as well as reforming the way in which red tape is made.
  • Renewal of Australia’s economic infrastructure such as roads, rail, energy and water to support future growth.
  • Reform of workplace relations to increase workplace productivity and flexibility, and to simplify the system of agreement making between employers and employees.
  • Reform of the tax system to ensure Australia’s personal and business tax systems remain competitive.

Since the release of the BCA Budget Submission 2005–06, the BCA has developed individual action plans in each reform area, based on independent research and analysis.

Together, these four action plans outline an integrated reform agenda aimed at ensuring that Australia’s economy remains competitive, and continues to deliver the rising living standards and prosperity to which many Australians have become accustomed.

The BCA Budget Submission 2006–07 argues that the same challenges and risks to sustained growth – including slowing economic growth and productivity, demographic changes and upward pressure on wages and inflation – that were identified in BCA Budget Submission 2005–06 still demand broad-based policy responses.

Since the BCA Budget Submission 2005–06, significant consensus has emerged among politicians, policymakers and opinion leaders on the need for further economic reform.

In particular, there is now wide agreement that the four areas of the economy highlighted by the BCA are priority areas for reform.

In response to this new consensus for reform, federal and state governments have acted quickly to make changes in some important areas.

The BCA in particular welcomes the federal government’s WorkChoices package of workplace reform.

It also welcomes the federal government’s review of Australia’s regulatory blow-out; significant spending increases by governments on important infrastructure such as transport and roads; and the federal government’s commissioning of a special taskforce to remove bottlenecks in export infrastructure.

Yet, as a whole, these steps do not represent a broad-based response to those underlying challenges that Australia’s economy continues to face.

Given the urgency of progressing reform and the clear consensus on what needs to be done, significant reform is still needed in key areas of the economy.

The BCA considers there are two key opportunities to substantially push reform in 2006:

  • Through agreement by federal and state governments to a reform program to reduce red tape and instituting renewal of vital infrastructure at the meeting of the Council of Australian Governments (COAG) next month.
  • Through the start of major tax reform in the 2006–07 federal budget in May.

Of the four areas of economic reform identified by the BCA, taxation has been slowest in terms of reform progress.

This is despite numerous reform options proposed by politicians, peak groups and policy think tanks over the past year.

The resurgence of the tax debate reflects a growing consensus that tax policy is one of the key tools a country has to enhance the competitiveness and dynamism of its economy and that a fundamental shift in tax policy is needed to lift Australia beyond its currently slowing growth curve.

As our regional and other international competitors increasingly use their tax systems to attract more investment and skilled workers, the question is not if major tax reform should occur, but when.

The BCA’s strong view is that the time for major tax reform is now. Current economic and fiscal conditions mean there is no better time for action. Leaving it until some future time when less favourable conditions force us to act will restrict our choices and make what are inevitable reforms less palatable.

Central to the tax reform process is the need to address fundamental issues of budget forecasting and analysis. Tax reform has lagged behind reform in red tape, infrastructure and workplace relations because inaccuracies in budget forecasting and costing analysis necessarily limit reform to short-term, piecemeal and often politically driven change.

The BCA argues that an improved system of revenue forecasting and cost-benefit analysis would provide the basis for a more strategic approach to reform in an important area of the economy that will increasingly require constant review and change.



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