15 January 2004

Australia’s peak business tax group, the Business Coalition for Tax Reform (BCTR), today urged the Commonwealth Government to make the review and restructure of Australia’s personal tax system a key focus for taxation reform.

Releasing the BCTR Budget Submission, Mr John Stanhope, BCTR Chairman said the Government should look at tax reform from a ‘whole of economy’ perspective including maintaining fiscal responsibility.

Implementing the announced business tax reform measures and the yet to be adopted Board of Taxation recommendations remains the BCTR’s top priority. But, reform of all areas of the tax system is fundamentally important for the health of the economy and the framework in which business operates.

“Australia’s personal tax rates are among the highest in the world and the top rates cut in not far above average weekly earnings,” Mr Stanhope said.

“The Government can be congratulated for its reform of business and indirect taxes. But as the majority of the Government’s revenue collection is from personal tax, it is high time for a systematic review of Australia’s personal tax system.

“Simply tweaking tax brackets is not sufficient,” he said.

The Submission outlines how our personal tax system not only impacts on our economy overall but also directly impacts on business in a number of ways. For instance, many small business operators pay tax at the personal marginal rate. Further, Australia’s high marginal tax rates and the discrepancy between the company and top personal tax rates add considerable complexity to the taxation of small and medium sized businesses. Business effort is diverted away from improving productivity and instead is channelled towards complex and expensive tax planning exercises.

The BCTR Budget Submission not only considers the impacts of the top two tax brackets but also highlights the significant problems for Australia of high effective marginal tax rates.

Mr Stanhope said that high effective marginal tax rates apply at very modest income levels in Australia. Many second income earners in two-income families earning below $21,600 face effective marginal tax rates of 47 per cent due to the loss of 30 cents of Family Tax Benefit (Part A) for every extra dollar earned and a tax rate of 17 per cent. Many middle income families face effective marginal tax rates of 61.5 per cent.

“We need to improve the incentives we provide for workforce participation, for saving and for investment. Reducing the impacts of high marginal tax rates in the income tax system and at the intersection of the tax and income support systems is the central way these incentives can be improved,” Mr Stanhope said.

The high marginal and high effective marginal tax rates faced by many Australians also provide incentives for tax evasion and the under-reporting of income both for tax and social security purposes. This results in a loss of revenue, higher government spending and it undermines confidence in our tax and income support arrangements.

The BCTR’s Budget Submission is available on the BCTR website on www.bctr.org

The members of the BCTR include Association of Consulting Engineers Australia, Australian Gas Association, Australian Constructors Association, Australian Food and Grocery Council, Australian Industry Group, Australian Institute of Company Directors, Australian Retailers Association, Australian Stock Exchange, Business Council of Australia, Corporate Tax Association of Australia, CPA Australia, Electricity Supply Association of Australia, Federal Chamber of Automotive Industries, International Banks & Securities Association Australia, Institute of Chartered Accountants, Insurance Council of Australia, Investment and Financial Services Association, Master Builders Australia, Meetings Industry Association of Australia, Minerals Council of Australia, Property Council of Australia and Real Estate Institute of Australia.

Contacts:

John Stanhope, Chair Business Coalition for Tax Reform through Jane Sullivan General Manager Public Affairs Finance and Administration Telstra (03) 9632 3701

Heather Ridout, Executive Business Coalition for Tax Reform, Deputy CEO Australian Industry Group (02) 9466 5504

Freya Marsden, Business Coalition for Tax Reform Secretariat, Director Policy Business Council of Australia (03) 8664 2664

To access a copy of the Submission, click here