The Albanese government will convene a three-day national discussion forum in late August. This event will bill tax and budget proposals specifically crafted to spur economic growth. Both Treasurer Jim Chalmers and Prime Minister Anthony Albanese have said they’re open to all ideas when it comes to tax reform. Australia is under growing pressure to reform state taxation away from land. This new initiative is a direct result of the overwhelming and urgent demand for a responsible, sustainable budget alternative.
The Business Council of Australia (BCA) recommends a flat-rate incentive of 18.5 percent for tax credits. High profile Australian success stories such as Atlassian and Cochlear are joining the chorus in favor of this project. These companies are among the largest winners under today’s tax credit regime. They see this proposal as a key first step toward realizing more than $45 billion in new research and development investments. Michael Brennan of the e61 Institute has warned against a “capital binge” focused on big infrastructure projects. He pointed to common inefficiencies that tend to creep into mega-projects.
Rather alarmingly, the Treasury has even suggested increasing taxes to address the expected budget deficit caused by the pandemic. Prime Minister Albanese has ruled out this option, preferring a more growth friendly approach over upfront tax hikes.
Economic Growth Over Tax Increases
Prime Minister Albanese made it clear that his government would focus on increasing economic growth first, rather than implementing immediate revenue increases. He stated, “What we’ve done very clearly in the first fortnight is concentrate on measures that make a difference to people’s money in their pocket. We make no apology for that … That was the basis on which we were elected.”
The upcoming productivity summit aims to identify strategies to support economic growth, including the “Future Made in Australia” industry investment program. Urgent issues Albanese is adamant that the summit address urgent issues, affordability, housing, and fiscal repair. He equally underscored the need to pursue inclusive and sustainable growth.
Bob Breunig, a tax professor at the Australian National University (ANU), proposed creating a tax deduction for investments in businesses. Here’s what he suggested— if you invest in a startup company and you make a reasonable return on that investment, that return should be tax-exempt. It would be the analogue of a tax free threshold for corporate income. Together, this is a well-intentioned proposal to incentivize business investment while reducing the tax load on America’s small entrepreneurs.
A Call for Comprehensive Tax Reforms
Former Treasury Secretary Ken Henry echoed the need for substantial tax reform, stating, “This is the lesson that I take from Australia’s tax reform adventures of the last 40 years. If it’s going to be successful, it’s going to have to be big.” In doing so, he opened the door to a conversation about how to make corporate taxes more progressive and our overall taxation system fairer. Specifically, he and Breunig argued for taxing rents from resources like mining income more heavily while reducing the burden on entrepreneurship.
The BCA’s federal tax proposal is consistent with these recommendations — calling for a more unified, transparent tax code to free businesses to do what they do best. Bran Black, representing the BCA, remarked, “Empowering businesses to make research and development investments is critical to making our economy more productive and innovative, and for delivering greater prosperity for all Australians.” He warned that without immediate action, Australia will lose innovators and capital to other countries.
The Coalition’s anti-tax instinct was most recently displayed when it signaled opposition to any tax reform package that raised the overall revenue take. Minister for Employment Michaelia Cash pressured that their reforms would not unnecessarily increase costs to businesses. She double-downed on their promise to control inflation.
Balancing Budget Sustainability
As the debate has matured, that excitement has yielded dozens of tax and budget proposals. There is widespread agreement that greater budget sustainability can only come from a combination of targeted spending reductions, higher taxes, and pro-growth policies that spur more economic activity.
Michael Brennan pointed out the inefficiencies associated with large-scale infrastructure projects, stating, “There’s a lot of value destruction going on in these mega-projects where the benefits are nothing like the value of the cash being spent.” This critique highlights the need and opportunity to examine spending in real time, as a necessary component of any comprehensive strategy for budget reform.
The government’s focus on creating effective policies that enhance economic conditions indicates its acknowledgment of pressing fiscal challenges while striving to support businesses and innovation. The decisions made at the forthcoming national ports discussion will determine the shape of Australia’s economic landscape for decades to come.
