System-wide reform, long-term planning: BDO reveals pre-budget wishlist

Ahead of the 12 May budget, BDO tax partner Mark Molesworth and chief economist Anders Magnusson have urged the federal government to set a clear long-term path to boost living standards.

Molesworth said the government must ask itself whether the current tax mix was still appropriate in the modern economy, and urged it to consider embarking on holistic tax reform.

“The last time a review of the Australian tax system resulted in significant changes was in the early 2000s. “All updates since then have either been tinkering or have bolted on new tax obligations without considering whether some rationalisation would lead to better outcomes,” he said.

“We encourage the Government not to waste the current crisis, and not to play ‘rule-in, rule-out’ games. Instead, properly considered, strategy-led, system-wide reforms should be considered.”

As part of this, Molesworth said the government should consider broadening the base of the GST, paired with reduced income taxes for lower-income earners, and consider the balance between taxes on labour and investment income.

Magnusson also called for tax reform in the budget, arguing that the tax base should be shifted towards wealth and economic rents rather than labour income.

“Effective tax reforms, including adjustments to capital gains tax and negative gearing, should create incentives for investment and innovation, fostering capital flow into innovative activities, while at the same time improving intergenerational fairness by shifting the tax base further towards wealth, rather than income from labour,” he said.

“It’s about changing incentives, so capital isn’t simply locked up in existing assets. When more capital can flow to businesses that can innovate and scale, it supports stronger productivity and stronger living standards in the long run.”

Magnusson said that reforms to change negative gearing and CGT settings could boost intergenerational equity and productivity. However, the devil would be in the details, he warned, as some CGT reform policies could further disadvantage younger generations.

He also urged policymakers to prioritise long-term objectives and productivity growth.

“The Budget has to look through short-term relief to a long-term plan to lift productivity and strengthen living standards,” he said.

“The Federal Budget is a chance to set a clear, people-centric path for higher productivity, so Australia can grow steadily, lift living standards and fund essential services for the people who need support, without shifting avoidable costs to future generations.”