Australian Business Lobby Calls For Comprehensive Tax Reform

by Mary Swire, Tax-News.com, Hong Kong

03 February 2006

A major Australian business lobby groups has called on the federal government to address the country's increasingly complex personal taxation system by establishing a dedicated review process to develop a clear path to reform.

In a new discussion paper released in Canberra on Thursday, the Business Coalition for Tax Reform has proposed varying degrees of tax reform ranging from "modest" to "major" which, it argues, would help boost Australia's competitiveness by attracting the best talent to the country.

Under the BCTR's 'modest' proposals, the number of tax brackets would be reduced from five to four, with tax rates of 0, 15, 28 and 40 per cent. The existing tax free threshold and Medicare Levy would be maintained, while the low income rebate would be increased to A$375. This plan would cost around A$8 billion (US$6 billion) per annum or 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 A$235 would be scrapped, but the tax free threshold would increase from A$6,000 to A$8,600, giving a tax saving of A$390. Other tax offsets would also be simplified, while deductions would be substantially curtailed to fund lower tax rates. The BCTR says that this scenario would have substantial compliance savings for taxpayers, but would cost approximately A$10 billion per annum.

Meanwhile, 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 A$11,600. This scenario would also require a radical simplification of current deductions, credits, offsets and special interest concessions.

“Australia’s personal income tax system is holding the nation back," said John Stanhope, Chairman of the BCTR.

“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 observed.

An apolitical organisation comprising 26 industry associations drawn from all sectors of the economy and representing small, medium and large businesses, the BCTR was formed in October of 1997 to co-ordinate the business approach in the taxation reform process

Its major goals include persuading the government to: eliminate as many existing indirect taxes as possible; adopt a single-rate goods and services tax on as broad a base as practical; undertake a comprehensive remodeling of Federal/State financial relations; reduce rates of tax on income and simplify business tax arrangements; and substantially reduce the poverty traps confronted by low and middle income families.

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