Queensland Economic Advocacy Solutions

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Tax reform is the antidote for Australia’s COVID-19 economic crisis

Tomorrow sadly marks the 10th year anniversary of when the Australian Government released the final report of the Ken Henry Tax Review – The Australia’s Future Tax System Review.  

This was a missed opportunity of epic proportions. Back then the key conclusion was that 115 of Australia’s 125 taxes and charges raised just 10 per cent of overall taxation revenue.  This massively inefficient and complex tax system remains today – virtually unchanged and costing jobs and business viability.

But what has changed since then is obviously the onset of a global pandemic that has seen economic activity plunge to levels not seen since the great depression in the 1930’s. Over the last few weeks when I’ve been speaking with business owners and leaders about what changes are necessary for an economic recovery - tax reform has been at or near the top of the list.

The nation's top tax reform architect, Ken Henry, recently indicated the current tax system will fail to support an economic recovery from the COVID-19 pandemic. A good question to ask then is should we be using the need to repair the economic chaos caused by COVID-19 pandemic as an initiator of fundamental tax reform.

As the saying goes, you never want a serious crisis to go to waste. It's an opportunity to do things that were previously thought of as undoable.  Much of the tax reform agenda is potentially unpopular but surely now is a time when the broader community will understand desperate actions are needed in this time of crisis.

It’s clear that the COVID-19 pandemic’s economic woes are going to worsen before improve. Crises like these force individuals and companies to change or suffer the consequences. The three tiers of government should be no different.

The current outdated tax system is incapable of efficiently and fairly raising the revenue required for future years and providing a primer for economic recovery. Australia’s and Queensland’s economy has changed forever but the tax system has not moved at the same pace.  As a result, Commonwealth and State taxes are now considered by Queensland businesses to be an inhibitor on any post COVID-19 pandemic economic recovery.  

It is widely recognised that holistic tax reform would realise a significant economic benefit to the Australian economy. At the time Ken Henry forecast his recommendations would be to increase GDP by 2 to 3 percentage points, (equivalent to $38 billion to $57 billion) and the real wage rate to increase in the range of 3 to 5 per cent. 

With this in mind undoubtedly the best way for the nation to recover from this once in a lifetime economic crisis  is for the Federal and State Governments to embrace tax reform to underwrite a business-led revival.

The 125 recommendations of the Ken Henry Tax Review are the obvious starting point and include cutting business taxes, increasing the goods and services tax and abandoning damaging state-based property stamp duties in favour of land tax.

Now is the opportunity to ensure the economic and business policy settings are squarely focused on ensuring an economic recovery agenda that also happens to lay the foundation for Australia’s and Queensland’s prosperity and standards of living well into the future.  

QEAS criteria for Australia's tax system:

  • equity - fairness in the distribution of resources between high and low income earners as well as similar tax burdens for taxpayers with similar means;
  • economic efficiency - taxation impacting neutrally on taxpayer groups and economic sectors with commercial decisions not skewed by tax considerations;
  • adequacy - tax systems raising sufficient revenue for public expenditure needs;
  • simplicity - taxpayers being able to clearly understand their obligations;
  • transparency - taxpayers understanding how and when they are paying tax, and how much tax they are paying;
  • cost - compliance and collection costs minimised; and
  • anti-avoidance - minimum incentive and potential for avoidance of taxation.

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