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Business Council seeks income tax cuts.

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Monday 11 April 2005

Business Council seeks income tax cuts


MARK COLVIN: The big end of town today added its voice decisively to growing calls from inside the Government a nd out for radical tax cuts. 


The Business Council of Australia wants the two top personal income tax rates to be cut to 40 per cent within four years and beyond that it argues the top rate should be 30 per cent, the same as corporate tax. 


Industry's main lobby group, the Australian Industry Group, says the BCA is "dead right". 


But inside the Government's ranks there's some concern that the barracking for tax cuts might drown out other calls for extra spending. 


Louise Yaxley reports. 


LOUISE YAXLEY: The Business Council's President, Hugh Morgan, says without radical change to the tax system Australia will lose people to other nations and fail to attract skilled immigrants. 


HUGH MORGAN: Tax systems of countries are being actively engineered to attract capital and people, never more so than now because never has there been a time when there is more flexibility, more capacity to move rapidly, both capital, labour, that's people and money, from one jurisdiction to another.  


LOUISE YAXLEY: To Hugh Morgan, now as always during his public life, competition is the answer. 


HUGH MORGAN: Businesses are in competition with each other, countries are in competition with each other, and let it be understood thoroughly, governments are in competition for each other.  


LOUISE YAXLEY: Mr Morgan says cutting the top two tax rates to 40 per cent by the 2008/9 budget would cost more than $5 billion but he says it should be done to help stop Australia becoming internationally uncompetitive. 


HUGH MORGAN: All round the world there's competition for skilled labour and whereas we used to think of that competition for hot scientists etc at the top end of the scale, today it is everybody who has very strong skill base. Whether it's plumbers and electricians or technicians of any sort, the competition is intense and those people are looking at their after-tax income and how well they can advance their families as a consequence.  


LOUISE YAXLEY: And he says cutting the top personal tax rate to 40 cents in the dollar within just a few years is the key short term change he wants.  


Beyond that Hugh Morgan wants to see the top rate slashed to 30 cents in the dollar. 


HUGH MORGAN: And this would bring personal tax rates and the corporate tax rate into alignment with each other so you wouldn't have to have the incentive for people to move their earnings from one to another.  


All of the zillions of lawyers and accountants and tax advisers and consultants are out there, some of the best brains in the country, spending their time working out how they can move income from one spot to another.  


LOUISE YAXLEY: The BCA has the backing of the Australian Industry Group and that creates a powerful lobbying force. 


But on the other side, the ACTU's Greg Combet doesn't believe cutting tax is the sort of surgery the economy needs. 


GREG COMBET: Well look, the BCA's trying to dress up their argument to give themselves a big tax cut by saying that it would create incentive for people to get skills. But the real way, I mean the real economic issues the economy is confronting of course are not tax reform, but it's the failure to invest in infrastructure, it's the failure to invest in skills and training development, it's the failure to achieve decent levels of investment in research and development and leading to exporting earnings. It's the failure to build a national savings base. These are the real economic issues.  


LOUISE YAXLEY: Mr Combet says the Government will welcome the calls for tax cuts. 


But there's far from universal backing from the Government backbench. Tax has prompted a feisty debate. One camp backs the BCA and believes lower taxes boost growth.  


ACT Liberal Senator Gary Humphries is in the opposite group and he disputes the Business Council's view that tax has such a major effect on population. 


GARY HUMPHRIES: I have my doubts that there is such mobility of high income earners in terms of where they base themselves and where they pay tax, that we would see a great many Australian businesses people choosing to move off shore because the highest marginal tax rate is too high for them.  


No doubt there are certain places in the world they could move right now where the highest marginal tax rate would be lower, but I don't think many Australian business people are prepared to make that trade-off in terms of quality of life.  


So I think that there's a limited strength in the argument that says you need to lower the highest levels of tax, or the highest marginal tax rates in order to retain existing Australian business people here or attract other ones from overseas.  


I think the other side of that equation is that we have a fairly good safety net in terms of welfare services and a capacity to look after the poorest and the most needy in our community and if we reduce our capacity to keep that safety net intact by virtue of reducing highest marginal tax rates, the trade-off would be quite unacceptable and I think would be rejected by most Australians.  


LOUISE YAXLEY: The Federal Treasurer has said there won't be tax cuts in next month's budget beyond those already scheduled and announced. 


MARK COLVIN: Louise Yaxley.