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Monday, June 15, 2009

Enough already with the tax revolt

says the BCA 

The Business Council of Australia has broken ranks with other business bodies declaring in its submission to the Henry Review that it sees no compelling case at present for further cutting personal income tax rates.

The submission puts it at odds with the Australian Chamber of Commerce and Industry which has told the Henry Review the 45 per cent top rate should be cut in increments to the company tax rate, at present 30 per cent.

The Chamber says Australia's top rate of 46.5 per cent including Medicare is above the OECD average and that cutting it would incentivise higher income earners who "are more responsive to taxes than lower income earners."

By contrast the Business Council submission released today finds that Australia's top marginal rate and threshold "are now in line with OECD averages" and that the contribution of Australian income tax to total tax revenues is "low by OECD standards"...

It rejects the proposition that a lower top rate of tax would encourage more high income earners to work or to come back from overseas contending that "the majority of the domestic labour supply is immobile in an international sense".

It says while it will be important to monitor Australia's ability to attract and retain skills as the global economy recovers a far more important problem is the relatively low rates of work among sole parents, women with children and Australians with disabilities, all of whom would be helped by are adjusting the rate at which benefits are withdrawn rather than cutting the top marginal rate.

Since July last year the 45 per cent rate has only applied to Australians earning more than $180,000. The second-top rate of 40 per cent will be cut to 38 per cent next month under already-legislated tax cuts and be cut again to 37 per cent in July next year.

The Business Council proposes instead halving the headline rate of company tax from 30 per cent to 15 per cent and also cutting capital gains tax and the tax on income from saving to 15 per cent.

It says the proposed flat 15 per cent tax rate would give all investments the same tax-preferred status as by superannuation, effectively creating a two-tier tax system in which income from investments is taxed more lightly than income from work.

The Council is unable to point to other tax measures that might pay for the proposed concessions, indicating that that its members are divided as to whether to abolish dividend imputation in order to fund a lower company tax rate as suggested by the review's chairman Treasury Secretary Ken Henry is a speech earlier this year.

It puts forward rough calculations suggesting that halving the rate of corporate tax might boost GDP by 2 percentage points a year, but says the Treasury would need to study the matter properly and also cut government spending in order to fund the concessions.

The Henry Review will host a major conference on at Melbourne University this Thursday and Friday on international directions in tax including the taxation of savings and wealth and specific goods and services including alcohol and tobacco.