THE Treasurer has revealed he is pushing for the biggest overhaul of tax and welfare since World War II, but has warned business that the Government will not shift the tax burden from the corporate sector onto individuals.
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In an interview with the Herald , Wayne Swan said the Government's tax review would deliver long-term tax reforms to meet challenges of the 21st century such as globalisation, technological change, an ageing population and climate change.
Mr Swan said he was determined to make Australia's tax system internationally competitive but would not enter a "race to the bottom" with low-taxing countries which provide inadequate government services.
He rejected calls by corporate executives this week for the review to consider increasing the GST - saying this would increase the tax burden on individuals - and to examine government spending.
"I know some people think tax reform just equates with putting more tax on punters," Mr Swan said. "I don't think that is tax reform myself.
"We are sensitive about a whole series of issues when it comes to the business community, the balance of taxes on work and investment and all the rest of it. But you won't enhance this by clouding it with what I regard as an old debate about the GST."
The Government has commissioned a panel headed by the Treasury secretary, Ken Henry, to report by the end of next year on all aspects of the tax and welfare system, except the rate and scope of the GST.
But as global economic uncertainty mounts, the Business Council of Australia wants the GST and government spending on the table for the review as this would allow cuts in corporate taxes to be funded by higher consumption taxes or lower spending.
Mr Swan said his priorities for the review were to make the tax system internationally competitive, to improve incentives for people to work and to cut red tape at both federal and state levels. While he would not canvass specific outcomes, his comments suggest the Government wants to reduce the overall burden of taxation but not at the expense of key economic and social infrastructure.
"We need a tax system which produces the revenue which gives us the first-class public services that gives us the comparative advantage we have," he said.
"This is all built upon a revenue flow that delivers first-world governance and international-quality infrastructure and systems in our own society.
"So it is not a race to the bottom. One of our big comparative advantages in this region is the quality of our governance."
Mr Swan did not rule out cuts to overall tax revenue. Asked whether the panel's recommendations would be revenue-neutral, Mr Swan said: "I'm not going to put any caveats on it."
The chairman of BlueScope Steel, Graham Kraehe, told The Australian Financial Review this week that the tax review would not be doing its job properly without the GST included. And the Business Council president, Greg Gailey, said: "The GST is a critical issue. If you do have a declining income tax base and you're heavily reliant on income tax and corporate profits are turning down then you can see the sort of looming crisis that's coming in government funding."
Mr Swan said one issue would be the international trend for lower tax rates to be applied to a broader base of economic activity.
"There is always a struggle in tax between broadening the base and lowering the rate," Mr Swan said. "It depends what your outcomes are.
"I want a progressive tax system that rewards hard work, that is what I want, but how we get there I am not about to put indicators up. That is what we are doing the inquiry for. The priority is to reward hard work, to not have perverse incentives that stop people from working additional hours."
Mr Swan said the review would tackle the interaction between the tax and welfare systems.
This would include the thorny issue of high "effective marginal tax rates" for people hit by the double-whammy of higher tax and lower welfare benefits as they entered the labour force.
"In an environment where we have got endemic labour shortages and skills shortages, you need a tax system that supports labour force participation, not inhibits it."
Mr Swan acknowledged business concerns about complexity and the administrative costs of complying with state and federal tax laws.
"Our objective is to make it simpler because it is too complex," he said. "There is the complexity issue but there is also the overlapping issue of state and federal taxes. I want to harmonise and simplify."
Asked if a corporations law-style approach, under which one authority administered federal and state taxes, was possible, he said: "Everything is on the table."
Mr Swan said it would be the most comprehensive review of the tax system since World War II, when the Commonwealth took over income taxes. This meant it was likely to require several waves of reforms rather than a single legislative package.
"You could not overnight rewrite it all," he said. "I would like to see the path ahead."