Canberra: “Australia’s current tax system inhibits growth and stifles entrepreneurialism and innovation,” Andrew Conway, the Chief Executive of the Institute of Public Accountants (IPA), has said.
Releasing the IPA’s submission to the Government’s “Re:think” discussion paper, Conway asked: “Do we want a tax system which continues to tax effort or a system that taxes consumption? It is the IPA’s view that the latter should be pursued if Australia is to arrest its productivity decline and make the tax system competitive again.”
“Consumption taxes such as the goods and services tax (GST) represent one of the most efficient and sustainable tax bases available and yet Australia’s GST base remains relatively narrow and covers 47 percent of private consumption. We can’t keep relying on bracket creep but it will be inevitable without a change in the tax mix,” Conway added.
The submission recommends that a review of the base and rate of GST should be considered as an option for addressing the fiscal imbalance between the federal and state governments. An increase in the base and rate of the GST could help fund cuts to personal and corporate income taxes and the abolition of inefficient taxes.
Any increase in the base or rate would need to be accompanied by increased welfare payments to mitigate the effects on low income households, it said.
Its submission said that the 2015 Budget – which provides a 1.5 percent reduction in the company tax rate for small businesses and a five percent tax discount for unincorporated businesses – did not go far enough. The IPA has proposed a concessionary rate of tax for small business income, to compensate for the regressive nature of compliance costs and to reward entrepreneurial activity.
The small business income component of an individual’s total income should receive a tax offset to reduce the effective tax rate on small business income, while all other income should be subject to existing tax rates, it said.
The IPA would like to see the small business capital gains tax concessions (CGT) reformed and a comprehensive review of fringe benefits tax (FBT) legislation initiated. It said the loss carry back regime should be reintroduced.
“Tax reform represents one of the strongest levers the Government has at its disposal to revive productivity, competitiveness and growth. Australia faces dual challenges of the need to ensure fiscal sustainability and boost productivity growth to sustain growth in living standards. Moving to growth supporting taxes is essential to sustain Australia’s economic momentum and to meet all current and future spending needs,” Conway said.
