Thursday, 2 February 2006

Australia’s peak business tax forum, the Business Coalition for Tax Reform (BCTR), has called on the Federal Government to establish a thorough and dedicated review process, headed by a prominent Australian, to develop a clearly structured plan to reform Australia’s personal tax system.

In a new discussion paper, Personal Income Tax Reform, released in Canberra today, the BCTR canvasses three possible directions reform of Australia’s personal tax system might take and explores the degree of change that could be possible.

The three scenarios, referred to as ‘modest’, ‘midway’ and ‘major’, result in a reduction in overall personal income tax, and promote greater competitiveness and simplicity – albeit to differing degrees.

The Modest Scenario – would reduce the number of tax brackets from five to four, with tax rates of 0, 15, 28 and 40 per cent, maintaining the existing tax free threshold and Medicare Levy, while increasing the low income rebate to $375 (i.e. an implied threshold of $8500). Every current taxpayer would get a tax cut, and the top two brackets would be collapsed into one, beginning at $70,001. It would cost around $8 billion per annum (around 6.5 per cent of personal tax collections).

The Midway Scenario – would reduce the number of tax brackets from five to four, with tax rates of 0, 15, 25 and 35 per cent. The current low income rebate of $235 would be scrapped, but the tax free threshold would increase from $6,000 to $8,600, giving a tax saving of $390. Other tax offsets would also be simplified. Deductions would not be completely removed, but substantially curtailed to fund lower tax rates. This scenario would have substantial compliance savings for taxpayers. It would cost approximately $10 billion per annum.

The Major Scenario – would involve the most fundamental change, including a reduction in the number of brackets from five to two, 0 and 20 per cent, and a minimum tax free threshold of $11,600. This scenario would also require a radical simplification of current deductions, credits, offsets and special interest concessions.

Chairperson of the BCTR, John Stanhope, said that “there were any number of possible directions tax reform could take, and the BCTR had chosen to outline just three in the discussion paper. The discussion paper does not promote any one scenario as the automatic solution to Australia’s personal income tax reform, but illustrates three possible proposals that a Government-established review process would be able to examine. These are ‘thought starters’.

“A review process would allow thorough, reasoned and consultative debate regarding the personal income tax system. It would also address costs and distributional impacts of change, something the BCTR has been unable to do within its discussion paper’s limited scope,” Mr Stanhope said.

“Australia’s personal income tax system is holding the nation back. We need a systematic approach to address the critical issues so our taxation system can progress towards a more globally competitive system. The setting up of such a review process by the Government would be the first step in achieving this outcome.”

Mr Stanhope said the business community is fully behind personal income tax reform as it has become a business issue.

“Australia’s high marginal tax rates and onerous tax rules are impeding the ability of Australians to participate in the workforce, to invest, and to save for the future. This in turn has a direct effect on the ability of Australian businesses to attract good talent and to find the capital to fund business growth,” Mr Stanhope said.

“The BCTR seeks to promote a more efficient and robust taxation system that benefits all Australians.”

About the BCTR

The Business Coalition for Tax Reform is a coalition of 16 business groups seeking to promote a more efficient and robust taxation system for Australia. BCTR members share a common vision: to create and implement a tax system that enhances business competitiveness and fairness, and assists in creating a business climate conducive to investment, growth, job creation and private saving.

The members of the BCTR include Australian Financial Markets Association, Australian Industry Group, Australian Institute of Company Directors, Australian Stock Exchange, Business Council of Australia, Corporate Tax Association of Australia, CPA Australia, Council of Small Business Organisations of Australia, Federal Chamber of Automotive Industries, Insurance Council of Australia, Investment and Financial Services Association, Master Builders Australia, Minerals Council of Australia, Property Council of Australia, Real Estate Institute of Australia and The Institute of Chartered Accountants in Australia.

Contacts:

John Stanhope, Chair, BCTR through Petros Kosmopoulos, Communications Manager, Public Affairs CPA Australia 0414 702 608 or (03) 9606 9873.

Paul Drum, Business Coalition for Tax Reform, Chair of Personal Tax Sub-Committee and Senior Tax Counsel, CPA Australia (03) 9606 9701.