Phillip Coorey & Ben Potter, 05 November 2015
The corporate sector has urged Prime Minister Malcolm Turnbull to make cutting business taxes a priority, arguing it would do more than anything else to stimulate growth and innovation.
Illustrating the competing tax reform pressures facing the government, Business Council of Australia president Catherine Livingstone used her speech to the council’s annual dinner on Thursday to lobby the Prime Minister to look after business amid various proposals over how to use an increased GST and other tax changes to fund a more productive tax system.
“While absolutely recognising the critical importance of personal income tax reform, the experience of other countries has shown that nothing will stimulate innovation and growth more than a reduction in the tax rate for all businesses, as part of a broader tax reform agenda,” she said.
“The income tax rate really matters, whether personal or business. If there is no growth dividend from tax reform, it will be a missed opportunity. We run the risk of undertaking a tax mix change that simply underwrites increased spending.
“This is not the path to sustained economic growth and prosperity.”
She also listed specific tax measures such as employee share schemes, tax incentives for start-ups, and the continuity of the R&D tax incentives for businesses.
Mr Turnbull, who attended the dinner, had used a keynote speech to a forum in Melbourne on Thursday morning to remind the economic and business community that tax reform would fail unless it was perceived by voters as fair.
Fairness was “absolutely critical” and that meant compensating people on lower and middle incomes through personal tax cuts and welfare increases for any GST increase.
“Any package of reforms which is not, and is not seen as, fair will not and cannot achieve the public support without which it simply will not succeed. Fairness will be central,” he said.
Treasurer Scott Morrison, who also spoke at the forum, emphasised the same theme and even invoked the compensation scheme Labor designed for its carbon tax.
Despite the Coalition abolishing the policy after attacking it for years as “a great big new tax on everything” that hurt pensioners and other vulnerable citizens, Mr Morrison admitted on Thursday that the compensation had been effective.
“What I do know about issues relating to compensation though was whether it was on the carbon tax … or indeed when the original GST was introduced back in the early 2000s, that there was an effective compensation method and it worked,” he said.
“I have seen no evidence to suggest that those things haven’t been able to be accommodated with tax changes of all sorts of natures over time.
“The form is the lived experience, not the theory, the lived experience on compensation issues, is that it works.”
With the politics of an increased GST vexed, Mr Morrison sought to cool down the debate by noting the government had yet to publicly advocate a GST increase.
Mr Turnbull said last week the GST was “clearly” on the table and Mr Morrison, again on Thursday, made a case for cutting income taxes to address bracket creep and, by inference, funding the cuts with an increased GST.
“Income tax has become too often out of sight and therefore, too often, out of mind in comparison to the GST, yet the tax you are paying is just as real and a lot higher,” he said.
Shadow treasurer Chris Bowen said Labor would release in coming weeks more of its tax policy in what was regarded as a push to get ahead of the government on tax reform and provide a fallback against mounting pressure to embrace a GST increase.
Mr Bowen said he did not agree with a Treasury table that shows the GST as one of the most efficient taxes, or that in ruling out an increase in the GST, Labor was sacrificing economic efficiency and growth for fairness.
Deloitte economist and budget expert Chris Richardson had shown the forum a Treasury table which shows stamp duties, insurance taxes and corporations taxes as the “bad” taxes, which imposed the biggest drag on economic efficiency, and land taxes, fuel excise and GST as the “good” taxes, which imposed the least economic drag.
A flat 25¢ in the dollar income tax imposed a slightly higher drag on the economy than a GST, and a progressive income tax – like Australia’s – imposed a higher burden still, although income taxes were in the “good” half of the chart.
Mr Bowen told the conference he had a different interpretation. He noted that the GST was only “very slightly to left [good side] of income tax” and that there were other taxes further to the left such as land tax that could be pursued in tax reform.
But Mr Richardson said the GST and income tax were “a little further apart than you think”.
Extracted in full from the Australian Financial Review.