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Australia has a “once in a generation” chance at tax reform and must take advantage, says the head of Treasury.
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Parkinson outlines opportunity for reforms
03 July 2014
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8 minute read
Dr Parkinson used a speech to the Association of Mining and Exploration Companies convention to outline the need for tax reform and highlight the current opportunity to fix the tax system.
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The government has committed to releasing white papers on reform of the tax system and of the federation by the end of 2015, and has said that it will take any proposals for reform to the next election – Dr Parkinson told the convention Australia must take advantage of this.
“It is hard to overstate the need for reforming the tax system,” he said.
“If our public finances are not placed on a sustainable footing, tax reform becomes more difficult as time passes,” added Dr Parkinson.
Australia’s tax mix is heavily weighted towards direct taxes with indirect taxes, including the GST, in a long-term decline. Without reform, Australia’s reliance on income tax will only increase over time, warned Dr Parkinson.
“Fiscal drag will pull someone on average full-time earnings into the 37 per cent tax bracket from 2015/2016, and will increase the average tax rate faced by a taxpayer earning the projected average from 23 to 28 per cent by 2024/2025 – an increase in their tax burden of almost a quarter,” he said.
Dr Parkinson acknowledged reform will not be a simple exercise, but said it is needed.
“Reform is difficult – but we can learn from the past,” he said.
“For the community to embrace change in this area, the case for reform has to be compelling and well understood. There is no magic formula for this. But past experience has taught us some lessons”.
“Reform proposals should highlight medium-term economic payoffs – the positive impacts they will have on individual effort, investment and growth. This dynamic, forward-looking focus will help guard against the 'zero-sum' – or rob Peter to pay Paul–focus of recent tax policy debates."
Dr Parkinson concluded by saying past structural reform efforts were not always popular but they provided the dividends of growth we now all enjoy.
"We once again find ourselves at a critical juncture where it is through ambitious structural reform, pursued in the national interest that Australians will continue to enjoy high living standards," he said.
"Before us there lie opportunities to undertake holistic assessments of some key policy areas. I encourage you all to take advantage of them," Dr Parkinson said.
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