9 May 2006

Australia’s peak business tax forum, the Business Coalition for Tax Reform (BCTR), welcomes the positive measures included in tonight’s Budget. However, business remains concerned about the lack of a comprehensive strategy to move Australia to the front of the pack.

“The recent international tax benchmarking study suggests that overall Australia might sit somewhere around the middle of the OECD pack,” said BCTR Chairman John Stanhope.

“But on the back of the revenue windfall that has accompanied fifteen years of uninterrupted economic growth, Australia should not be content to just be a middle ranking country.”

On personal tax

In February 2006, the BCTR called for a comprehensive and independent review of Australia’s personal tax system, and released a discussion paper outlining a number of approaches to be considered. While tonight’s changes move us in the right direction, the BCTR would like to see an ongoing commitment to keeping Australia internationally competitive, given the global skills shortage. Merely cutting rates and shifting thresholds, while sure to be widely applauded, fails to achieve that goal.

The Government’s decision to radically simplify the taxation arrangements for superannuation represents a very positive move, and should also result in improved participation rates for mature aged workers.

On business tax

Although the corporate tax take continues to increase by billions of dollars annually, business tax measures in this year’s Budget return just $4.2 billion over the next four years.

That said, the changes to depreciation will be a welcome shot in the arm for business investment in plant and equipment, particularly in the manufacturing sector, while the venture capital incentives are a welcome improvement over earlier arrangements.

Given the continued size of Australia’s Budget surplus, and the significant contribution made by business, the BCTR remains concerned at the number of Business Tax Reform measures that remain unfinished, including:

• The harsh treatment of corporate losses;

• The lack of amortisation for goodwill; and

• The failure to address the bias against offshore income through the imputation system, which puts Australian based multinationals at a competitive disadvantage.

“The BCTR would hope that this isn’t as good as it gets for business tax,” Mr Stanhope said.

The way forward

Business stands ready to engage in the difficult but necessary process of debating various personal and business tax reform options. Such a process could include losers as well as winners – at least in the short term. But overseas experience as well as Australia’s own Ralph reforms have shown that well considered tax reform can pay for itself – in terms of improving participation and saving rates and reducing opportunities and motivation for tax minimisation. That’s the difference between tax cuts and tax reform.

“The propitious alignment of the budgetary and political planets won’t last forever – the government should act decisively while it still can,” Mr Stanhope said.

About the BCTR

The Business Coalition for Tax Reform is a coalition of 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.

Contacts:

John Stanhope, Chair, BCTR through Stephen Morrison on (03) 9632 3701.