The Urgent Call for Tax Reform

The 21st century demands a globally competitive tax system. Yet we continue to fall behind because of our current tax structure that is misleadingly labelled “progressive.”

Andrew Bragg from the Australian reveals that productivity has languishing for over a decade, so the RBA and Treasury have lowered their expectations for economic growth. The Intergenerational Report shows our living standards are falling – losing both investment and jobs overseas. The World Economic Forum’s Global Competitiveness Report shows Australia is lagging behind to 21st place. According to the report, the largest cause of Australia’s economic decline is our current tax arrangement. Solving our current economic malaise will require reducing government involvement, rather than expanding it.

The Financial Services Council, with KPMG modelling, has presented the ambitious package that Australia needs:

  1. A 22% company tax rate

  2. Lower, flatter and indexed personal income taxes

  3. Abolition of stamp duties

  4. A higher and broader GST

The benefits will include:

  1. A 2% growth in GDP

  2. A 3.7% increase in investment

  3. Tens of thousands of new jobs

  4. Higher wages thanks to the larger pool of capital and increase in productivity

A flatter tax delivers tangible benefits that can be proven statistically. This is unlike a “progressive” tax system, whose proponents rely on emotions rather than fact, in creating public policy.

Rather than what “sounds fair” we should be aiming for what is fair. Progressive tax systems favour multinational corporations who can afford to pay high tax rates, whilst stifling favour small to middle sized business that cannot.

If we continue on our current system, the average wage earner will be on the second highest income tax rate. Our government has been relying on this silent tax for far too long without indexing the tax scales. Whilst corporate and personal income taxes account for 33.6% of revenue across the OECD, this is bloated up to 58% in Australia.

In order to compete globally, we must adapt to global conditions. This means unhinged innovation, productivity and growth – propelled by a better, fairer and flatter tax system.

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