CANBERRA: The rejection of an increase in the GST by all major political parties should not bring a halt to tax reform, according to the Business Council of Australia, which has argued for a phased approach that would begin with personal and corporate income tax cuts and postpone further consideration of lifting the GST for a decade.
The BCA’s tax policy, released today, argues that high personal income taxes are discouraging people from joining the workforce while high company taxes are stopping investment.
“If the GST is not an option in the medium term, we need to find another path through,” BCA President Catherine Livingstone told a business lunch in Sydney. “We are overly reliant on a volatile, narrow base of income taxes, both personal and company. Twelve companies pay 33 per cent of all company tax, and three per cent of individual taxpayers pay almost 30 per cent of personal income tax,” she said.
The BCA’s tax policy says modest personal income tax cuts, lifting the bottom two tax thresholds to compensate for inflation, would cost $3bn to $5bn. It suggests raising the second tax threshold from $37,000 to $40,000 and the third threshold from $80,0000 to $87,000 to compensate for “bracket creep”, or the effect of inflation on the level of tax people pay. There would be a further increase in the tax thresholds in the following year. For someone on $40,000, this would translate into a $405 tax cut each year, while it would be $315 for someone earning $87,000.
The BCA wants the standard company tax rate cut to 28.5 cents in the dollar immediately, matching the special rate introduced in this year’s budget for small businesses. This would cost about $2bn while it would like to see the company tax rate reduced further to 25 per cent within five years, which would cost $8bn.
The BCA says the immediate tax cuts should be financed by tightening superannuation tax concessions, limiting work-related expenses and measures to limit tax avoidance on company tax. The BCA argues that cutting the company tax rate would stimulate investment and boost economic growth. It says lowering the company tax rate to 25 per cent would lift economic growth by 0.5 per cent and lift consumer spending by 0.3 per cent.
“The biggest beneficiaries over time would be workers, who gain from higher wages and more jobs associated with stronger investment and higher labour productivity,” the council’s tax policy document says.
