Laura Tingle, 10 November 2015

It is not corporate tax collections that have been eroding in Australia, but consumption taxes like the goods and services tax, a major industry body has argued, opening a new front in the war about tax reform.

The chief executive of the Australian Industry Group, Innes Willox, will tell a Sydney conference on Wednesday that historical data refutes suggestions the corporate tax base has been eroding and that, in fact, “in the 2013-14 year, company tax had recovered to pre-GFC levels – even though the retreat of commodity prices and mining company profits was well and truly underway”.

This has occurred despite the increasing focus on multinational tax minimisation practices.

“To me the heightened concern with company tax base erosion is not something that is supported by the facts,” he will say.

“Of course there may be issues with individual companies – this is always the case – but it is not something that is showing up in the aggregate data.”

The more important issue “is that Australia has a relatively high recourse to company tax”, he will say. “This is in part due to our comparatively high tax rate and in part due to our relatively broad company tax base.”

By comparison, historical data “shows our general taxes on consumption, and our taxes on specific goods and services – which mainly is accounted for by alcohol, fuel, and tobacco excises – are both falling away as a share of GDP”.


“Excises are falling relative to GDP for two reasons,” he will say. “The main one is that fuel, tobacco and alcohol are declining as a share of total consumption. In addition, between 2000 and last year fuel excise was not indexed.  Reintroducing indexation will slow, but not reverse the erosion as a share of GDP.”

Mr Willox plans to say the introduction of the GST in 2000 “certainly lifted general consumption taxes as a share of GDP. But since 2000, while both the base and the rate have remained unchanged, the GST has steadily declined as a share of GDP”.

“This is because it does not apply to significant areas of higher-growth consumption spending – health, housing and education. Over time it is set to erode further.

“What this means, of course, is that commensurate pressure will be transferred to other tax bases and in particular the income tax base.”

Mr Willox will propose a set of tax changes that include a company tax rate of “no more than 25 per cent” to be in place within a couple of years, and a broader land tax base.

“Broadening the base and raising the rate of the GST will need to play a central role in a reform package”, he will say. A chief use of the funds would be to finance the removal of a number of existing taxes.

High marginal tax rates should be addressed by raising the highest personal income tax threshold, he will say.

He proposes an overhaul of superannuation taxation. Super contributions would be taxed as normal income but a flat rebate – either a flat dollar amount or a flat proportion of employer superannuation contributions – would be then available to all taxpayers. A less distorting approach to taxing individuals’ saving and investment would also be applying a discount to investment income and investment expenses along the same lines as the current GST discount, he argues.

Extracted in full from the Australian Financial Review.