"The federal budget has reinforced that it is time for the hollow tax reform promises to end. We urgently need to get serious about boosting our competitiveness and productivity. We are already paying the price for our tax reform failures with declining living standards and an increasingly uncompetitive investment climate," said Innes Willox, chief executive of national employer association, the Australian Industry Group.
"For two decades governments have delivered piecemeal changes rather than genuine tax reform, which has only added to the complexity and structural problems afflicting our tax system. Eradicating the 37 per cent personal income tax rate as a means to slow the scourge of bracket creep must be a priority.
"The ramifications of our lack of competitiveness are significant.
"Firstly, our lack of tax competitiveness makes us unattractive for global companies allocating capital for new projects. We rank second in the OECD – behind only Norway – for corporate profit taxes as a share of GDP. Our 6.6 per cent rate is double the OECD average of 3.3 per cent, and more than four times higher than the United States.
"Second, we labour under a cumbersome two-tier corporate tax system that discourages investment and growth, with complications around dividend imputations credits, the treatment of franking credits, and differential treatment for different ownership structures.
"To become at least more competitive we should seriously consider cutting the overall corporate tax rate to 25 per cent. This should be matched with a proper set of simplification reforms, which streamline the complicated system of rules and exemptions that interfere with sensible business activity.
"Third, state government taxes are rapidly growing, are increasingly inefficient and hostile to investment. The state and local government tax take has surged by 31 per cent since the pandemic, and now accounts for 5.4 per cent of GDP. Payroll taxes on employment raise now around a quarter of all subnational tax receipts.
"State taxes are also a federal issue, as some of these are 'taxes of constitutional necessity'. The Commonwealth needs to lead a proper reform of tax federalism in Australia that enables a simple and competitive system across all levels of our economy.
"Tax reform has broadest and deepest reach of any economic reform available to government, and should be a major public policy priority in 2025.
"International competitiveness must be front of mind. Australia is a comparatively high-cost investment jurisdiction and uncompetitive tax settings will price us out of areas where we don't have natural advantages.
"Finally, there needs to be a greater focus on productivity in this discussion. Rarely are tax reforms debated on their merits in lifting productivity performance. But with almost no productivity improvements in the Australian economy for five years now, we need to use the tax reform lever to turn this national crisis around.
"Policy leaders can't afford to avoid tax reform leading into the next election. Piecemeal changes that deliver Australians $5 a week in 15 months is not tax reform. A budget that does not address uncompetitive corporate taxes is not reformist. A budget that declines to face into structural tax reform is a major disappointment. Taking on these challenges is crucial to enhancing prosperity. Not addressing it is a major blind spot in our national debate," Mr Willox said.
