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Governments must agree on tax reform: BCA

Governments must agree on tax reform: BCA

A STRONGER federal-state relationship is vital for corporate tax reform and economic growth according to the Business Council of Australia’s (BCA) budget submission for 2007-08. An association…

A STRONGER federal-state relationship is vital for corporate tax reform and economic growth according to the Business Council of Australia’s (BCA) budget submission for 2007-08.

An association of 100 chief executives from the country’s leading companies, the BCA urged federal and state governments to find a better way of working together for the good of the nation’s economy.

“As the BCA progressed its research on improving regulatory, workplace relations, infrastructure and taxation systems in Australia, it became clear that the problems and dysfunctions of the current system of federal-state relations now represent major barriers to future prosperity,” the submission said.

“In order to achieve significant reform, improvements in the operation of Australia’s federal system of government are urgently required.”

As Lawyers Weekly reported in January, the BCA estimated inefficiencies within the federal system cost governments a minimum of $9 billion a year. Steven Munchenberg, deputy CEO of the BCA, said the council wanted “to spark a debate in Australia about whether the current operation of federal systems is satisfactory and what we can do about that in pragmatic terms”.

“We don’t want to abolish a level of government or totally rewrite the constitution or anything — it’s more about practical solutions,” he said.

Federal Attorney-General Philip Ruddock seized on the BCA submission as support for the view that state governments should cut red tape for business, which included “ridiculous inconsistencies and contradictions in state laws that impact on business”.

“It is important that business and members of the public continue to encourage the states and territories to be active partners in reforms and to focus on national rather than parochial interests,” Ruddock said last week.

Despite some discussion on harmonisation, the A-G said faster progress should have been made toward the ultimate aim of ensuring economic prosperity.

Yet according to Duncan Baxter, tax partner at Blake Dawson Waldron, merely reducing red tape is not necessarily the answer.

“It’s hard to say in the vacuum that we have too much red tape,” he told Lawyers Weekly. “We need to be more balanced and say it may seem like that, but which regulations are really causing the problems, and what would really happen if they were not there?”

Baxter said the obstacles red tape can provide, although onerous at times, often serve a valid purpose. “While you could describe it as red tape, it really is ensuring that sources of concern are properly managed.”

For western countries, where thorough regulation is expected in many instances, Baxter said it is difficult for governments to retreat from this position.

“It’s hard for governments to sit by and say, ‘No, I’m not going to do anything’,” he said.

“There is the assumption that because something has gone wrong, there ought to be a regulation in place to stop it going wrong again. The end result of that is excessive regulation because you find that you get a worse outcome than if you had an occasional failure, and that worse outcome is a general slowing of everyone’s business.”

In the second meeting of the Council for the Australian Federation (CAF) in Sydney last week, the state and territory leaders reaffirmed their support for a constitution convention in February 2008, while attacking the Federal Government’s attempts to procure more legislative power.

“Premier Beattie has argued that the Commonwealth Government, supported by High Court decisions, is eroding the power of the states and territories and their ability to meet the needs of the public,” the CAF communiqué said.

“Since the High Court decision on WorkChoices in November 2006, the need for states and territories to consolidate their role in Australia’s federal system has become even more pressing.”

The BCA submission flagged the recent workplace relations debate as an example of poor inter-government co-operation.

“Unfortunately, the history of effective government co-operation in Australia is patchy at best,” the submission said.

“Recent developments in respect of workplace relations and efforts to establish a national system, which has seen state governments seeking to undermine the federal legislation however possible, do not bode well for those seeking reliable and effective co-operation in policy making.”

The BCA said that what is needed most is for governments to work together to produce a common market in Australia as “for business, the impact of poor federal—state relations manifests itself clearly through the absence of a common market”.

Taxation reform is also a way Australia could achieve a top-five rating for living standards in the world’s developed economies by 2012, according to the submission. At the moment, “the latest internationally comparable figures for corporate taxation show that Australia has close to the highest corporate tax burden in the OECD [organisation for economic co-operation and development].”

As of 2005, Australia sat in seventh place in the OECD rankings of gross domestic product per capita.

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