The government was understandably excited to get their personal income tax legislation through the Senate yesterday, but the fact that it came down to such a knife edge decision is of concern. It remains to be seen whether they will now be able to get the proposed company tax changes through the Senate next week, but with the second highest company tax rate amongst OECD countries, how can Australia compete on the world stage unless they do?
Australia needs to be competitive, and needs a competitive taxation system to be able to do so. Not only is it not competitive, it remains excessively complex, with a GST rate way below most other countries, and only levied on half the economy. It reinforces RBA Governor Phillip Lowe's comments a week ago that the Australian population had no stomach for tax reform.
It was interesting to see the governor of the RBA weigh into the debate, noting that the personal income tax cuts were only the "first step" in the right direction, saying that they were merely incremental, and falling short of "that kind of first-order tax reform that will make a fundamental difference" to productivity growth.
Hedge Clippings believes that the Australian population has, in general, plenty of stomach for tax reform, but the combination of a political process which results in both parties automatically opposing the other's policy, political expediency which encourages negativity (not to mention happily lying in the process), and the inability of either party to successfully prosecute a policy change, leave the Australian population with an overly complex and uncompetitive taxation system.
If the RBA Governor was prepared to speak up, maybe it is time for both the population and the politicians to listen. What is disappointing is that previous governments have had their chance, but didn't have the stomach for tax reform. Ken Henry's 2010 review of the taxation system (excluding the GST which he wasn't allowed to include in the final report) proposed 9 broad themes (still applicable today) covering 138 recommendations, of which the then government implemented only three.
So full marks to the current government for progress to date, but there's an awfully long way to go yet. As the Chinese proverb states, "A journey of a thousand miles begins with a single step."
