Tax Reform

This article appeared in The Australian Financial Review on 23 January 2017 (subscription may be required).

If Malcolm Turnbull doesn’t take action soon, he and the outgoing NSW Premier will be reminiscing over the same missed opportunity for years to come. 

Mike Baird’s resignation this week came as a surprise to many. However his greatest regret shouldn’t be a surprise, and it should sound alarm bells in the Prime Minister’s office. 

The failure to prosecute successfully a national tax reform agenda within the federation was a major disappointment for the NSW Premier, not due to lack of desire or perhaps even fortitude on his part, but rather because the Federal Government failed to capitalise on a real opportunity to achieve real reform as part of a comprehensive reform to the nation’s taxes.

The policy leadership shown by Baird and others in 2015 and again in 2016 saw almost 40 per cent of Australians supporting a rise in the GST rate – surely a remarkable feat considering the question. However, the opportunity was squibbed. Short-term thinking and day-to-day politics got in the way of bold reform and long-term funding surety. The temptation to buckle under the weight of relatively minor criticism proved too great, and the Prime Minister walked away from the opportunity to achieve real, long-term reform that would provide all Australians with a better future.

As Baird told reporters at the press conference announcing his resignation, “I think there was a big opportunity there to do something very significant in terms of the competitiveness of the economy and the sustainability of funding services in the long-term, and that's something I'm disappointed (about) - I certainly gave it a crack.”

He went on to say, “There was an opportunity there where all State Premiers and the Federal Government were considering a whole range of options that I believe if we’d come together to some solution we could have set up a more competitive economy that generated more growth, more revenue for services, and that would’ve been a great thing … That’s something I strongly believe would’ve been fantastic.”

Baird’s farewell comments reminded those of us who have championed tax reform about the distinct lack of leadership being shown by Federal leaders in this area. During the last Federal Election campaign neither major party took a policy of meaningful tax reform to the electorate. The only measures suggested were piece-meal. This simply isn’t good enough.

Tax reform is unfinished business in Australia. Governments need to listen to the broad cross section of the Australian community calling for a broader, fairer tax regime.

Last year the Australian Institute of Company Directors, on behalf of our 39,000 members, called for comprehensive reform of Australia’s tax system. Our current system is too complex, and too reliant on inefficient taxes, particularly at state level. Stamp duties on property, in particular, distort decision making and contribute to the notorious immobility of our labour force.

This means we are falling behind as a competitive tax economy in which to work, invest and save. It makes the job of State and Federal Governments harder too, limiting their ability to invest in infrastructure, boost productivity and deliver the services Australians need.

The AICD has recommended holistic tax reform which, among other things, includes an increase in the GST rate to 15 per cent with an $11.6 billion funding boost to the states and territories and compensation for low income earners, alongside capital gains tax and superannuation reforms, cuts to personal and company tax rates and incentive payments to states and territories for state tax reform.

Baird recognised the problem and realised that while a rise in the GST would never be politically popular, we couldn’t continue to kick the tax reform can down the road to be dealt with by future generations. Baird proposed part of the solution when he called for an increase of the GST rate to 15 per cent. A broad based consumption tax is one of the most efficient and stable revenue sources for governments. A higher rate would also allow states and territories to remove the inefficient taxes that inhibit growth and long-term prosperity.

Despite his regrets, Baird ended on a hopeful note, seemingly confident that matters of tax reform would be dealt with in coming years. Mike Baird had a crack at meaningful tax reform, but if his optimism is to be rewarded, Malcolm Turnbull and Scott Morrison need to have a crack too.