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Business Council seeks personal tax rate redu -

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Business Council seeks personal tax rate reduction

Reporter: Michael Rowland

TONY JONES: Meanwhile, the chorus for tax reform is getting louder, with Australia's peak business
group calling for big cuts to the top personal tax rates. The Business Council of Australia wants
high-income earners to pay no more than 40 per cent of their income in tax as a way of boosting
productivity. The BCA also wants a review of the corporate tax rate and the removal of the
financial penalties often faced by welfare recipients returning to the workforce. More from finance
correspondent Michael Rowland.

MICHAEL ROWLAND: Concerned the current tax system is undermining Australia's international
competitiveness, the Business Council has released its own blueprint for change.

HUGH MORGAN, PRESIDENT, BUSINESS COUNCIL: And I think it is a benchmark for the question of the
current taxation debate that we think should be lively at this time.

MICHAEL ROWLAND: Topping the Businesss Council's wish list is the cutting of the two top personal
tax rates to 40 per cent. The BCA also wants the 30 per cent corporate tax rate reviewed with a
view to lowering it and it also wants to remove the often hefty financial disincentives faced by
welfare recipients wanting to return to the workforce. The peak business group says high marginal
tax rates act as a brake on productivity and they hinder Australia's ability to attract skilled
workers from overseas.

HUGH MORGAN: We face increasingly strong competition for capital and skilled labour from
traditional competitors, whether it's the United States or elsewhere. All around the world, there's
competition for skilled labour.

MICHAEL ROWLAND: It's a view shared well beyond the top end of town.

JOHN FREEBAIRN, MELBOURNE UNIVERSITY: Interestingly, if a lot of those skilled people and capital
flows into Australia, it can actually make our unskilled people more productive and they'll
actually end up being winners down the track.

MICHAEL ROWLAND: John Freebairn is one of Australia's leading tax academics. He says far too many
workers find themselves paying the top marginal tax rate of 47 per cent.

JOHN FREEBAIRN: And I suppose what is so peculiar about Australia is that those top rates come in
at a very low level. $80,000 is really only double average weekly earnings and a lot of skilled
engineers, scientists, even tradespeople, as well as sports and arts people are earning those sorts
of salaries.

MICHAEL ROWLAND: At the other end of income spectrum, people on welfare often find they go
backwards if they seek to enter the workforce. The Business Council wants action taken to cut the
sometimes prohibitive effective marginal tax rates paid by people who lose their welfare payments
as their incomes rise.

JOHN FREEBAIRN: The real problem is if we take many of the social security allowances, once your
income gets up a little bit, it's withdrawn at between 30, 50 and 70 cents in the dollar.

MICHAEL ROWLAND: The Business Council's entry into the tax reform debate comes on the eve of a
Cabinet discussion on next month's budget. And while the Prime Minister has been stressing the need
for fiscal restraint, corporate Australia feels the government has a golden opportunity to make
long-lasting changes to the tax system.

HUGH MORGAN: The BCA believes that now is the time when prosperity is high, that we have the best
capacity to manage change. Now we understand, so I'll repeat again, that takes political courage to
do it when things look to be running so well.

MICHAEL ROWLAND: The government would have to be particularly courageous when it comes to funding
lower personal tax rates, particularly if it means the scrapping of popular tax concessions.

JOHN FREEBAIRN: And that would be like getting rid of work-related expenses, getting rid of
concessions on capital gains tax, removing the last concessions on the fringe benefits tax.

MICHAEL ROWLAND: High tax rates aside, the other big business bugbear is the sheer complexity of
tax legislation.

HUGH MORGAN: Now don't tell me John Citizen or Joe Sixpack understands the Tax Act. I don't know
who does. I think I'm right in recalling that even the Commissioner said he had difficulty in
understanding the Tax Act and if the citizens don't understand the Tax Act, don't think they will
respect it. We have to simplify these issues.

MICHAEL ROWLAND: Whatever its shape, tax reform will be no easy task. Michael Rowland, Lateline.