04/04/2017 - 13:44

Bring tax mix switch back on agenda: AICD

04/04/2017 - 13:44

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A lower company tax rate, the abolition of stamp duty and a review of the federation should be top priorities to drive national prosperity in coming decades, the Australian Institute of Company Directors has said, as it seeks to reignite public debate on major economic reform.

Bring tax mix switch back on agenda: AICD
Cuts to the company tax rate will make Australian exporters more competitive.

A lower company tax rate, the abolition of stamp duty and a review of the federation should be top priorities to drive national prosperity in coming decades, the Australian Institute of Company Directors has said, as it seeks to reignite public debate on major economic reform.

Speaking to Business News after the launch of the Governance of the nation - a blueprint for growth report, AICD chief economist Stephen Walters said there needed to be a long term focus on reducing the burden of the tax system.

“People just focus on piecemeal reform,” he said.

“While welcome, the company tax cuts that were announced last week were only one element of the tax system, and that’s a problem.”

He said state taxes, such as stamp duty and payroll tax, were some of the most inefficient around.

In fact, the 2010 Henry tax review found that stamp duty had a marginal excess burden of 35 per cent, meaning  every $100 million raised from the charge, about $35 million of economic value is destroyed.

Land tax has an excess burden below 10 per cent.

Other changes would be a broader based GST, charged at a 15 per cent rate, with the cash used to cut company and income taxes.

For the record, the marginal excess burden of company tax is close to 40 per cent of revenue raised.

“We’re arguing, even in a revenue neutral way, you could generate a prosperity dividend of around $16 billion,” he said.

That dividend would be in the form of higher growth.

There would also need to be a reduction in government spending to enable the federal budget to balance, with the AICD calling for a spending cap at 25 per cent of GDP.

Federalism

Mr Walters said the Council of Australian Government process had become borderline dysfunctional, and was one example of the need for a review of federation.

It was established in 1992 coordinate policy between state and federal governments, and has recently been a hotbed of debate on changes to the GST distribution.

Mr Walters said a high level of partisanship was just one issue facing Coag, with the approach needing to be longer term and forward looking.

“The last Coag meeting there were some items thrown on the agenda the day before… these are big issues that probably are multi-term, so you can’t just throw it in there at the last minute,” he said.

A similar review was dropped by the federal government in 2015 after Malcolm Turnbull took over as Prime Minister.

Other blueprint recommendations included fixed, four year terms for federal parliament, and a simplification of the award wage system.

“The federal parliament is now the only parliament (in Australia) that doesn’t have four year terms, and most state jurisdictions obviously have fixed terms now,” Mr Walters said.

“The last 15 years I think the average term of the parliament is 2.5 years.

“It's too hard in our view to get anything meaningful done in that time.”

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