BCA Wants Bold AustralianTax Reforms

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

26 March 2010

Awaiting the expected release of the Henry tax review before the Australian budget on May 11, the president of the Business Council of Australia (BCA), Graham Bradley has written a letter to its members setting out the principles on which it will judge the tax reform policies of all political parties.

The BCA’s high-level principles of tax reform to support investment, jobs and growth, and more efficient national wealth creation, are based on evidence from around the world that demonstrates how tax settings can affect growth through their impact on economic decisions and the allocation of resources.

“We have a once-in-a-generation opportunity to use comprehensive tax reform to underpin and generate the next wave of economic growth and prosperity,” Graham Bradley said. “We can’t afford to let the political theatre of an election year get in the way of honest, determined, gutsy reform.”

The BCA’s opinion is that “the tax system should support investment and growth through a reduced reliance on taxes on capital and income and a greater reliance on broad-based taxes on consumption.” Another reason for less reliance on income taxes is that they are more “exposed to the volatility associated with the business and commodity cycles”, and thereby accentuate budget deficits and surpluses.

This would involve including in the prospective tax reforms consideration of the goods and services tax (GST), which was left out of the Henry review but an increase in which would be the obvious recompense for reduced direct taxes.

A further principle of the BCA is that “the tax system should be consolidated to contribute to the further growth and development of a seamless national economy, and should also enhance Australia’s international competitiveness.”

In addition, the taxation framework should be characterized by stability and predictability, and tax arrangements should be transparent, simple to administer and minimize the compliance burden imposed on taxpayers.

Graham Bradley states that the BCA will therefore be asking such questions as to whether the tax reform policies result in a growth-oriented change in the tax mix; whether the review recommends reductions in the number of taxes; whether the recommended tax rates are globally competitive; whether the reforms act to encourage investment in Australia, including foreign direct investment; whether the recommendations will reduce complexity and administration and compliance costs; and whether the recommendations will provide the government with a more robust and stable revenue base.

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