Bloomberg News

Australian Businesses Sees ‘Fiscal Crisis’ Without Tax Changes

September 30, 2011

Oct. 1 (Bloomberg) -- The Business Council of Australia, a national lobby group on public policy, urged the government to simplify the tax code or risk plunging the country into a “fiscal crisis” by the middle of the century.

Australia will face an annual budget deficit for state and federal governments of 5 percent of economic output, or A$70 billion ($68 billion), in 2050, without tax changes, the council said in a report today.

“Australia faces an unfolding fiscal crisis,” the Business Council said. “The sooner Australia gets its tax system right, the more likely we will be to generate the economic growth that will support the necessary revenue generation in the years ahead.”

The council released the report ahead of a government tax forum scheduled to be held in Canberra on Oct. 4 and Oct. 5. Treasurer Wayne Swan said the focus of the meeting will be on ways to keep Australia’s government debt under control. Prime Minister Julia Gillard has pledged to return the federal budget to surplus in 2013, after recording a shortfall of A$47.7 billion in fiscal 2010-11.

An aging population will raise pressure on governments to pay for increased health-care costs and social programs, and without cuts in other spending and a change to the tax system, governments won’t be able to meet those demands, according to the report.

‘Inefficient and Uncompetitive’

The current tax system is inefficient and uncompetitive, the council said.

Australia had an effective corporate tax rate on new investments of 26 percent in 2010, compared with an average of 18 percent among competitor countries, according to the report. The top marginal personal income tax rate is also uncompetitive within the Asia-Pacific region, the group said.

The council urged the government to start by abolishing stamp duties and insurance taxes, which it said are taxes on transactions that limit mobility of labor and capital and harm innovation and productivity.

The country should move to reduce its dependence on personal income and company taxes and become more reliant on consumption taxes such as for goods and services, the group said.

“This will raise necessary revenue while supporting growth and investment,” the council said in the report.

Swan already rejected that proposal according to the Australian newspaper.

“It’s a lazy solution” to increase consumption taxes, Swan told reporters yesterday, according to the newspaper. “It’s not a path the government is going down.”

--Editor: Paul Tighe, Jim McDonald

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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