Wednesday, July 02, 2014

Treasury. We're in for very slow economic growth, consider pushing up the GST

Treasury boss Martin Parkinson says the case for tax reform is now urgent, with changes to the Goods and Services Tax part of the mix.

So tepid was the outlook for economic growth that wages were set to grow at only half their usual pace he told an Association of Mining and Exploration Companies breakfast in Perth. Incomes were likely to grow by by only 1 per cent per year in the decade ahead.

“It is hard to overstate the need for reforming the tax system,” he told the breakfast.

“If our public finances are not placed on a sustainable footing, tax reform becomes more difficult as time passes. Our tax mix is heavily weighted toward direct taxes on income — personal and corporate. If we were to leave our tax rates and bases as they are, our reliance on income taxes would grow over time.”

“We will move even further in this direction if, as we anticipate, the relative share of total indirect taxes continues its long-term decline, including the GST.”

A projected increase in the income tax take as more Australians were pushed into higher brackets meant that if Australia did nothing its “reliance on income taxes would grow.”

“Fiscal drag will pull someone on average full-time earnings into the 37 per cent tax bracket from 2015-16,” he said. It would lift the average tax rate faced by a taxpayer earning the projected average wage from 23 to 28 per cent by 2024-25 , an increase of almost one quarter.

“Without conscious change, the economic cost of raising tax from our current tax mix will increase,” he said...

The upcoming inquiries into tax and federal-state relations would provide triggers.

“Closely aligning these white papers provides a once-in-a-generation opportunity for engagement, debate, analysis and, ultimately, reform,” he said.

Mining investment was “set to shift from being a major contributor to economic growth to a detractor”.

Mining exports would continue to climb in the years but export prices looked set to continue to fall. The economy would need to “heavily rely on other sectors” if it was to return to trend growth.

Improvements in the productivity of mining would not lift Australian incomes as much as might be thought. Around four-fifths of the returns would flow overseas.

In The Age and Sydney Morning Herald

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