How Our Tax System is Holding Back Families and Workers
16 March 2016
This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia was published in The Daily Telegraph on 16 March 2016.
While the tax debate has fixated on particular taxes, we’ve lost sight of what it all means for individual Australians, their families and the next generation.
And there is one point on which almost all of us would agree. Nobody likes a tax increase.
That’s why ‘bracket creep’ has become one of the most pressing challenges facing Australian families and workers today. Bracket creep sees people paying higher taxes when their wages are increased, simply in line with the cost of living.
Australians on lower and middle incomes are hurt worst of all when this happens. According to our calculations, an Australian worker earning $150,000 will pay 11 per cent more personal income tax in three years’ time, while a worker earning $36,000 a whopping 27 per cent more.
This constant erosion of take-home pay is unfair, and disproportionately punishes people who are prepared to work a little harder to get ahead. It explains why so many Australian families report that they are working harder than ever before, but feel like they are barely keeping up with rising costs.
The Business Council is saying that doing nothing about our outdated tax system is simply not an option. At a time when Australia is competing in a rapidly changing international marketplace, we all need the incentives to work to our full potential.
That is why when we released our discussion paper last week, Realising Our Full Potential: Tax Directions for a Transitioning Economy, the Business Council recommended a staged decrease in personal income tax to counter bracket creep.
Importantly, the first of those cuts would focus on people who need them the most; that is, Australians earning between $37,000 and $87,000. With income per person in Australia falling for the third year running, it’s time to put more pay back into the pockets of average Australian workers, many of whom are raising families or caring for aging relatives.
Another tax that impacts on jobs and wages is business tax. Many people think that taxes affecting companies have little or nothing to do with individual Australians. But with more than 10 million people employed by the business sector in Australia, nothing could be further from the truth.
When businesses are burdened with excessively high tax rates, they are less likely to expand or invest in their workforces. Right now, that burden is plain to see, with Australia’s 30 per cent rate of company tax a full five per cent higher than the OECD average, and a crippling seven per cent higher than the average rate in Asia – the region where we need to compete.
Little wonder that over the last three years, non-mining investment has been the lowest in over half a century, and wages growth is at the lowest rate in 15 years.
At a time when businesses are under unprecedented pressure from global competition, the tax rate has a big impact on decisions to invest, innovate and grow.
If we are to maintain and improve Australia’s living standards, to continue to deliver a quality of life that many believe is unrivalled around the world, we urgently need to make changes to strengthen our economy.
A growing economy is the only way to deliver social progress in areas that are critically important to Australian families, such as job creation, health outcomes and educational attainment.
Within our reform package, the Business Council has set a goal of returning Australia to 3.5 per cent average annual GDP growth.
This is not a magic number – it is the rate of growth Australia has experienced over the past 50 years and we should expect nothing less.
Real growth needs real reform, because hardworking Australians deserve better than a system that discourages them and the nation from realising our potential.