There are many growth-driving tax reform options still on the table despite the federal government’s move away from a GST increase, according to KPMG tax partner Grant Wardell-Johnson.
There are many growth-driving tax reform options still on the table despite the federal government’s move away from a GST increase, according to KPMG tax partner Grant Wardell-Johnson.
Speaking to Business News during a visit to Perth, Mr Wardell-Johnson said the two key priorities for fixing the system would be a long-term reduction in company tax rates, and to fix the interaction between welfare and income taxes.
The tax and transfer system interplay was particularly important, he said, because it meant some women seeking to re-enter the workforce or increase their hours working after having children would have effective marginal tax rates above 70 cents per dollar earned.
That is due to family payments, particularly childcare, being clawed back or tapering off at certain income levels, which combine with high marginal tax rates on labour income to act as a huge disincentive on female workforce participation.
“I think that needs to be addressed, through a different system in relation to childcare benefits and family assistance,” Mr Wardell-Johnson told Business News.
“That would drive greater productivity in the longer term. “We would like to see (the payments) moved to a per-child basis.”
Mr Wardell-Johnson said the system could be made less regressive, with payments to families using expensive childcare operators lower as a portion of the cost than those using cheaper operators.
He cautioned it could be expensive system to fix, however, with the federal government unlikely to take drastic action.
It follows a move by the government under Tony Abbott last year to consolidate the payments into one stream and increase subsidies for disadvantaged and vulnerable kids. With regard to company tax, Mr Wardell-Johnson suggested a medium-term cut in the rate to 26 per cent from the current level of 30, saying it would reduce the gap between Australia and other developed Asian centres such as Hong Kong and Singapore.
That would bring a gradual increase in foreign investment into Australia, with further long-term cuts.
Prime Minister Malcolm Turnbull has already flagged such a reduction, something supported by the opposition.
Capital gains
Further changes could be made to capital taxation, however, to make it fairer and more streamlined, Mr Wardell-Johnson said.
One would be to have a flat 25 per cent discount for capital gains on all capital income and for negatively geared property.
That would also be expanded to unfranked dividends.
The benefit would be bringing the treatment of different assets, particularly positive and negatively geared properties, closer together.
A third tax issue that would need federal leadership was reform of inefficient state taxes such as payroll and stamp duty, Mr Wardell-Johnson said.
He agreed with the position generally held by economists that stamp duty should be replaced by a broad-based land tax, although such a process would be more likely if the federal government could incentivise and harmonise state action.
That would be necessary to ensure the system didn’t negatively impact seniors and the most vulnerable, Mr Wardell-Johnson said.
