Tax reform could leave some ‘worse off’

Australians will have to accept that some people may end up worse off if the federal government pushes ahead with tax reform, Treasury Secretary Martin Parkinson says.

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Dr Parkinson says various interest groups should consider how the total package of any tax reforms benefits the country and its citizens as a whole rather than focus on the impact of reforms on a particular sector.

“It (tax reform) is almost impossible if people start to say every individual element of the reform package has to be seen as leaving no-one worse off,” Dr Parkinson told an Australian British Chamber of Commerce lunch on Wednesday.

He said tax reform required the government, businesses, the broader community, unions and welfare groups to talk about how change would be managed and what trade-offs may be required.

The federal government is expected to launch its promised tax white paper next week to complement its already-commissioned federation review.

Dr Parkinson said the structure of Australia’s tax system was essentially unchanged since the 1950s and was heavily weighted towards direct taxes on income earned by businesses and individuals.

Such an outdated system made it hard for Australia, which was very dependent on foreign investment, to compete with countries that were lowering corporate tax rates.

Dr Parkinson said a cut in corporate tax would help attract foreign investors to Australia.

The benefits of that would be reflected in lower prices for consumers and higher wages and more jobs for workers.

The Abbott government announced in its May budget that the company tax rate would be cut by 1.5 per cent, to 28.5 per cent, affecting 800,000 businesses, from July 1, 2015.

Dr Parkinson also said the national accounts released on Wednesday highlighted the need for economic reform.

He said the accounts showed that living standards – measured by real gross national income per capita – had fallen for a second quarter in a row as mining investment dissipated as a driver of economic growth.

“This should be understood for what it is: a serious warning to us as a nation that unless we tackle structural reform, including fixing our fundamental budget problem, we will not be able to guarantee rising income and living standards for Australians,” he said.

Official figures released before Dr Parkinson’s address showed economic growth slowed to just 0.3 per cent in the September quarter, half the result economists had expected.