The Australian Chamber of Commerce and Industry (ACCI) has called on both sides of politics to address the issue of tax reform in the lead-up to the next federal election, with CEO Andrew McKellar noting that it is now over 25 years since the GST was introduced.
The ACCI wants to see the reliance on income tax and company reduced, while it also wants a cap on federal government spending, at 25% of GDP.
“We don’t think there is a clear narrative from the major parties that addresses the challenges of weak productivity growth, escalating business costs and the regulatory burden”, he said.
“Tax reform has to come back on the agenda to improve competitiveness, by reducing reliance on income taxes and company tax”.
“Stage three income tax cuts and flying a kite on negative gearing are not serious tax reform”.
Australia’s tax system is among the most reliant on income taxes in the world.
Personal income taxes reached $331 billion in 2023-24, accounting for 52% of the federal government’s total tax revenue.
Meanwhile, indirect taxes continue to shrink as a share of total taxes.
GST revenue shrank to a record low of 13.4% of total tax in 2023-24, compared to an average of 15.9% in the GST’s first decade of operation. Fuel and tobacco excise also continue to shrink.
Treasury’s Intergenerational Report likewise warned that personal income tax revenue will increase to 58.4% of total taxes in 2062-63 unless there is tax reform.
A combination of bracket creep and declining taxes from indirect sources will drive the increase in personal income taxes. It will also be levied on a shrinking share of workers in the economy because of population ageing.
Therefore, Australia faces a situation where a shrinking pool of workers will pay increasing taxes to support the rest of the population. The situation is unsustainable and inequitable.
The solution is to undertake broad-based tax reform that broadens the base and shifts the burden away from workers.
We don’t need to reinvent the wheel. The 2010 Henry Tax Reform provides most of the solutions and only needs to be updated.
The types of reforms that are needed include:
- Lowering personal income taxes.
- Raising the GST to 15% (compensating those on fixed incomes).
- Raising taxes on resources, especially energy exports (i.e., gas and coal).
- Norway and Qatar raise massive revenue from their energy export sector.
- Australia is rich in everything the world needs: iron ore, coal, gas, nickel, lithium, and uranium. We should be earning oodles of taxes on the export of these essential inputs.
- Curbing tax concessions that bleed the budget of money and increase inequality (e.g., the capital gains tax discount).
- Shifting from fuel excise to distance-based charging.
Again, the Henry Tax Review provides the blueprint and only needs to be updated to account for the rise in gas exports, etc.
