BCA calls for sweeping tax reforms to boost Australia’s economy

Comprehensive reform of the tax system is necessary to ensure the system is fit for the 21st century and capable of addressing the challenges Australia will face into the future, according to a recent report by the Business Council of Australia.

The BCA’s Seize the Moment report said it was important that Australia’s tax system is able to raise sufficient revenue in a way that is least harmful for economic growth and better able to contain the volatility Australia faces as a small open economy.

“Broad-based tax reform should rebalance Australia’s tax mix in a way that better promotes growth and investment,” the report said.

“The starting proposition from National Cabinet must be that all options are on the table. The tax system must be reviewed holistically and the community deserves to be informed about the full suite of possibilities, the benefits they bring and the trade-offs they involve.”

BCA has urged the government to reduce reliance on direct taxes such as personal tax and company tax.

The report recommends that the government proceed with the Personal Income Tax Plan stage 3 tax cuts and further improve work incentives, especially around the tax and transfer interface for low-income earners.

It also says that the company tax rate should be progressively lowered to 25 per cent to encourage both domestic and foreign investment, reward innovation and “embed the principle that company tax rates in Australia should always sit around the OECD average”.

BCA said the government should increase the use of indirect taxes such as the GST to reduce Australia’s reliance on taxes that inhibit growth.

The government should broaden the base and increase the rate of GST and com-senate low-income households through a mix of higher transfer payments and lower personal taxes.

“Pre-emptively ruling out changes to the GST on equity grounds would be short-sighted. The community deserves to understand the implications of broad tax reform for future growth (and scope for appropriate compensation) rather than simply focusing on the perceived fairness of changes to particular taxes considered in isolation,” the report said.

“The community should also be made aware of what they will be giving up if reform does not take place.”

In a press conference yesterday, Treasurer Jim Chalmers said the government did not have any plans or any intention to change the rate of GST.

“I think I've made that clear on other occasions when I've been asked about it, but equally, it's easy I think to focus on the limited amount of areas where there's a difference between the government and the BCA, but working closely with the BCA leadership, I've come to appreciate ‑ and I'm grateful for this ‑ the way that there is so much that the government is interested in that the business community is interested in as well,” said Dr Chalmers.

“Energy, workforce issues, institutional reform ‑ there is so much more that we agree on with the BCA than disagree on, the GST is one of those things that we [disagree] on.”

Dr Chalmers said the government views the most fertile ground for tax reform as multinationals, high balanced superannuation, compliance, cigarettes and PRRT reform.

“We've made our priorities clear when it comes to tax reform, there's a huge amount of common ground that we can work with the BCA on outside the GST.”

State taxes ‘highly inefficient’

The report also called for state taxes to overhauled with state tax bases currently highly reliant on volatile and inefficient taxes, which are harmful to economic growth and budget stability.

“Stamp duty increases the cost of buying a house and discourages people from upsizing or downsizing their home for one that better suits their family, or from moving closer to a new job. It also makes it harder for small businesses to relocate as they grow,” the report said.

“Stamp duty can discourage new housing development as the duty is paid twice: once by the developer when the land is acquired and again when the owner buys the house.”

Payroll and land taxes have also been designed in a way that hinders efficiency, particularly given their narrow bases, which leads to increased complexity and higher rates, and disparities across Australia, according to BCA.

“Payroll tax is a tax on jobs. A national business must also deal with eight different payroll tax regimes with differences in rates, thresholds, exemptions and administration across the country,” it said.

Institutional incentives also stymie major state tax reform, the report said.

“Through a combination of High Court rulings and conditions attached to Commonwealth grants, the tax bases available to state governments have gradually eroded. Much of the windfall from tax reform that lifts economic performance is likely to end up in Commonwealth rather than state coffers,” it said.