Tax reform to help productivity

At a time when productivity continues to languish at a 60-year low, business, unions and economists are preparing for the Albanese government’s productivity roundtable in August. In a submission to the Productivity Commission, big four accounting firm KPMG is focusing attention on two areas worth tackling if the event is to lead to reforms that promote investment and significant economic growth. One focus of the submission is corporate tax; the other is federal-state relations.

As a medium-sized nation dependent on foreign investment, Australia has a very high company tax rate, which makes it less competitive in attracting capital, KPMG warns in its submission, as Matthew Cranston reports. Lowering the tax rate would be difficult given the nation’s dependence on the government’s revenue base, the firm acknowledges. But a fall in the rate should promote higher foreign capital investment, helping reverse lacklustre business investment, which grew just 0.7 per cent last quarter. Optimising the business climate is key to reversing the slowdown.

That point is borne out in the OECD’s 2024 summary of Revenue Statistics, which noted that while Australia’s tax-to-GDP ratio was below the average of other advanced economies, our tax structure relied more than that of comparable economies on higher revenues from taxes on personal income, profits and gains, and higher revenues from taxes on corporate income and gains, payroll taxes and property taxes. A lower proportion of Australian revenue, however, was drawn from GST compared with other advanced nations.

For business, state taxes such as stamp duty, payroll tax and land tax, especially in states such as Victoria where it has become crippling for many firms, also have a major, adverse impact on business activity. So does the overlap of federal, state and sometimes local government red and green tape, which acts as a brake on infrastructure, mining and major housing developments, as Housing Minister Clare O’Neil said recently.

Corporate tax rates should be cut, new taxes reviewed every two years for “unintended consequences”, and research and development concessions overhauled, the KPMG submission argues. It also takes aim at the inefficiencies in Treasury over the rollout of new tax rules such as those on capital gains for foreign residents.

Jim Chalmers will outline details of the roundtable in a speech this week. In an interview with The Australian, Innovation and Industry Minister Tim Ayres identified artificial intelligence as a key subject for the summit, saying more jobs would be gained through AI than lost. Senator Ayres blamed the decline in manufacturing as a reason for poor productivity growth in the past decade. AI would help bolster manufacturing, he predicted, declaring that technology advancements have traditionally created jobs in the sector. That is contrary to arguments by the ACTU and unions, which have claimed that without government action to protect workers, those in both knowledge-based and manual work will be vulnerable to widespread job losses.