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KPMG has challenged the thinking behind Australia’s current combination of taxes, saying reforms are essential to maintain the social compact between taxpayers and the government over the next 10 years.
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Australia's 'social compact' at risk: KPMG
15 April 2014
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In the Tax reform for our future success report, KPMG also cautions that Australia is being overtaken by competitors with lower costs of doing business and that people’s living standards will fall unless action is taken to reverse the declining terms of trade.
Rosheen Garnon, KPMG national managing partner- tax, said the current norms that underlie Australia’s tax system need to be looked at afresh.
“For example, it is accepted wisdom that broadening and increasing GST is politically unpalatable. Yet we disproportionately rely on income taxes - including bracket creep as more and more people end up with higher marginal tax rates - and extremely inefficient indirect taxes,” he said
“Letting the current mix just drift on will lead to economic decline, an increased drag on business, and may drive down participation rates in the economy. It ultimately has the potential to break the social compact taxpayers have with government. So doing nothing really is not an option,” added Mr Garnon.
The report also questions the argument that lowering Australia’s corporate tax rate would benefit shareholders rather than the general public.
“There is considerable evidence to suggest that in a medium-sized open economy like Australia’s, a lower corporate tax rate would actually help workers by generating increased capital intensity, greater technology transfer, and R&D per employee,” said Mr Garnon.
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“This would lead to greater productivity and hence higher wages. Once again, conventional thinking needs to be challenged,” he added.
KPMG observes that significant tax reforms require long-term political thinking which, the company says, Australia currently lacks.
“A good tax system is a win-win for the country. It is not a zero-sum game with winners and losers but so often the public debate is phrased in that unhelpful way,” Mr Garnon said.
“We need to create a broad national coalition for change to overcome vested interests. The federal government and Opposition have crucial roles to play in enabling a proper national conversation with the public and the states. The alternative will just not be sufficient to meet our twin challenges of reversing economic decline and our budget deficits,” he said.
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