Red tape is a brake on growth

While it will be limited to about 25 participants to fit in the cabinet room at Parliament House in Canberra, the Albanese government’s productivity roundtable has begun to generate practical, worthwhile proposals that warrant consideration. In a submission ahead of the summit, the Australian Industry Group pointed out in Monday’s paper that businesses were being hit with more than 100 federal and state government taxes and levies, making their effective tax rate the second ­highest among OECD countries – behind only Colombia. That dubious distinction is not one the nation needs if flatlining productivity and falling living standards are to be turned around, which is the point of the roundtable. “At 28.5 per cent, Australia’s effective rate is much higher than the OECD average of 21.9 per cent as well as close peers such as the UK (22.6), US (22.7) or Canada (23.7),” the submission notes.

It is not certain if the opposition will have a seat at the productivity table but Jim Chalmers has welcomed its constructive input, inside or outside the room, and has promised to respond in kind. Better regulation, cutting red tape without lowering standards, had an important role to play in productivity improvement, he told the National Press Club a week ago.

That is why the Treasurer should look carefully at the work of opposition productivity spokesman Andrew Bragg, who has found that Labor added 5000 regulations in its first term that were hampering productivity, including the complexity of building new homes. Total extra regulations, Senator Bragg said, included 368 in climate change, energy, environment and water; 199 in agriculture; 646 in infrastructure, transport and regional development; 891 in Treasury; 958 in health, disability and aged care, and; 264 in finance. The government should get out of the way and let business focus on growth, not compliance, he told Greg Brown.

In his press club speech, Dr Chalmers said he wanted ideas and proposals for the roundtable to be put forward in the national interest, not through the prism of sectoral, state or vested interests. They should be budget neutral at a minimum but preferably budget positives, he said. And they should be “specific and practical, not abstract or unrealistic”. One of the AI Group’s proposals – reducing what is effectively the second-highest company tax rate in the OECD – is obviously not revenue neutral. But it matters if the economy is to be more competitive and attract more investment. Australia’s 30 per cent tax rate for medium and large businesses was the equal fourth highest in the OECD, Simon Benson reported on Monday. That uncompetitive rate was compounded by micro-taxes, duties, levies and charges imposed on small, medium and large-scale businesses by every level of government. The $300bn a year collected from business by state and federal jurisdictions was more than double the $144bn a year collected in company tax, the AI Group told Dr Chalmers in its pre-roundtable submission. Depending on whether they were operating nationally, some companies faced more than 100 taxes. Paperwork generated by that burden surely is an affront to Dr Chalmers’s commitment to reducing the burden of regulation and creating a simpler system to fund services. In an interview with Benson, AI Group chief executive Innes Willox focused on one of the state taxes that should be revisited: payroll tax. It raises $40bn a year for the states and is a perverse incentive against business growth. Victoria and Queensland add a mental health levy in addition to payroll tax liabilities.

Mr Willox said the AI Group wanted to take advantage of the opportunity Dr Chalmers had provided for tax reform that could raise investment and productivity while supporting the budget. Complex and unwieldy systems for deductions, credits, offsets and allowances had emerged in the system, he said, increasing compliance costs, distorting behaviour and narrowing the tax base, which in turn required higher headline rates. Tax reform needed simplification of the system as well as lower rates. The processes of building and doing business also need simplification.