The federal government must ensure state-based taxes that inhibit business growth are not drowned out of the tax reform debate, according to the chief executive of the Australian Industry Group.
Speaking on Sky News yesterday, Innes Willox said while reform of the goods and services tax is important, the GST should not dominate the debate.
“We need to look at and examine all state-based taxes that are inefficient – land tax, payroll tax and the like,” Willox said.
“At least shine a light on all those taxes so we do have a comprehensive reform package. I think that’s what’s happened in the past and what’s frustrated a lot in business is that these proposals… Governments have picked at one bit of it. As Tony Shepard’s commission of audit said, the tax system we have at the moment isn’t fit for purpose for the 21st century.”
But Willox said he is confident the government will come out of the debate with a coherent and sensible position.
“If there is to be changes to the GST, and we from a business perspective believe there needs to be for a whole lot of reasons, then there should be adequate compensation to ensure that those impacted by a rise in the GST aren’t worse off,” he said.
“So the government then has to work through that, so you’re talking about pensioners, those in welfare and the like. That all makes perfect sense. But the reality is, our tax system isn’t working.”
Willox’s comments come as the National Centre for Social and Economic Modelling found a GST increase of 5% or a broadening of the current GST rate’s base would hit lower and middle-income households the hardest.
The research, which was commissioned by the Australian Council of Social Service, found if the GST rose to 15% then people in the lowest 20% of income brackets would pay 7% more of their income on the consumption tax.
Meanwhile, those in the highest 20% of income brackets are expected to siphon just 3% of their income into the GST if it is increased by 5%.
Speaking at the Rebuilding Foundations for Reform conference this morning, Prime Minister Malcolm Turnbull attempted to hose down these concerns.
“Any set of tax reforms must be fair,” Turnbull said.
“Fairness is absolutely critical. Any package of reforms which is not and is not seen as fair will not and cannot achieve the public support without which it simply will not succeed.”
Peter Strong, chief executive of the Council of Small Business Australia, told SmartCompany this morning Turnbull seems to be drawing inspiration from Bob Hawke, Paul Keating, John Howard and Peter Costello when it comes to selling tax reform.
“We have the template now and they didn’t do the one thing, they understood the impacts across the whole of society and business,” Strong says.
“They engaged with people and looked at the whole picture.”
Strong says when the GST was first implemented under Howard, the states didn’t want to get rid of a number of taxes.
This time, he hopes it will be different.
“We’re going to say let’s get rid of all that complexity and make sure the state stuff doesn’t impair business or make it more complicated,” Strong says.
“One of the issues is big businesses don’t seem to be too scared of payroll tax. That doesn’t seem to worry them. Where the problem occurs is in people moving from small to medium – it’s an absolute impairment for people.
“We think if you can’t get rid of it totally, then the threshold for payroll tax should be a lot higher, around 200 employees – because then you’re big and can deal with it.”
Broede Carmody is a former senior SmartCompany reporter. Before this, he was a co-editor of RMIT University’s student magazine Catalyst.
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