Taxes to abolish and replace, all in the national interest

NAB Chairman and former Treasury Secretary Ken Henry. Picture: Jesse Marlow

When business is challenged to explain our activities we often say we are simply going about our business. We say it is for government to determine whether any of our activities have negative social or environmental consequences and it is for it, not us, to do something about it.

If that’s the best we can do, then we shouldn’t wonder that we find it so difficult to occupy positions of trust and respect in society. ­Neither should we wonder that politicians of all political colours have such an uneasy relationship with us. So what should we do?

One of the more important things we in business can do at this time is accept responsibility for the social and environmental outcomes of our activities. Not unreasonably, this is what the community expects.

In the past couple of years, we at National Australia Bank have spent a lot of time reflecting on the purpose of our business.

We were not surprised to find that our bankers are motivated strongly by the contribution they make to the lives of others; ­especially those who have the courage, who are bold enough, to take on calculated risks in the ­pursuit of a better future for their families, their businesses and their communities. We have framed our purpose in these terms: back the bold who move Australia forward.

Different businesses will articulate their social purpose in different ways. But there should be a common thread. I would hope that all of us in business would be motivated by a purpose that contributes to improving the wellbeing of our community.

And government? When business commits to improving community wellbeing, it creates room for government to pursue a higher ambition. We should want our political leaders to be motivated to ensure that all Australians have the opportunity to choose lives of real value, and that future generations have no lesser opportunity. I know numerous community groups in Australia share a similar purpose.

It is with this backdrop that we need to set a course for tax reform, with a shared purpose to guide us away from an unsustainable path.

It’s almost 10 years since my colleagues Jeff Harmer, John Piggott, Heather Ridout, Greg Smith and 50 tax policy professionals in the Treasury, led by Rob Heferen, and I were commissioned to conduct a comprehensive review of Australia’s tax and transfer ­systems. So what would Australia’s tax system look like today had our recommendations and findings been implemented in full? The following would have been abolished:

• The complex “invoice-and-credit” GST, payroll taxes and all state taxes on consumption, including taxes on insurance.

• Resource royalties.

• Stamp duties on property transfers and motor vehicles.

• Fuel excise and vehicle registration taxes.

• Luxury car tax.

• The Medicare levy.

• Taxes applying to scholarships, pensions, allowances and other transfer payments.

• Renewable energy targets and all other ad hoc schemes designed to achieve greenhouse gas abatement.

With those things abolished, today’s tax system would have the following principal features:

• A broad-based cashflow tax replacing the GST and payroll taxes and all inefficient state consumption taxes such as those on insurance.

• A uniform national resource rent tax.

• A 25 per cent company tax rate, for all companies.

• Progressive land taxes replacing stamp duties on property transfers.

• Cost-based, comprehensive road-user charges replacing fuel excises, stamp duties on motor vehicles, luxury car tax and vehicle registration taxes.

• A carbon emissions trading scheme.

• A much simpler and more progressive two-rate personal income tax system, with most people facing the lower of the two marginal rates.

Obviously, those engaging in today’s tax debates don’t see themselves delivering that sort of tax system.

Their debates concern a small set of very narrowly cast propositions, such as when, by how much and how broadly should company tax rates be reduced.

Of course we will have to cut our company tax rate; in a world of mobile capital, countries don’t get to choose their own company tax rate in perpetuity.

There is good reason to think that a lower company tax rate will drive a faster rate of investment and labour productivity growth, and that should support higher wages growth over time.

However, cutting the company tax rate is only a small part of a required restructuring of our tax system, and that in turn is only a small part of the policy reform program that will be required if we are to ensure that all Australians have the opportunity to choose a life of real value.

I’ve talked in the past about the need for the nation’s leaders — across business, community and government — to frame a compelling and unifying narrative that motivates and supports national development.

It must present a realistic assessment of where we are — but also an ambitious, clear vision for our future.

And it must detail the strategies that will secure that ­vision against many challenges.

Australia will see no progress on tax reform unless the community sees vested interest make way for the national interest.

Ken Henry is chairman of the National Australia Bank. This is the edited text of an address he will deliver today to the AICD Governance Summit in Melbourne.