According to Steven Kennedy, there is no case to extend the temporary tax arrangements put in place to support the economy through the COVID-19 pandemic.
In fact, the secretary to the Treasury suggested a clampdown on company taxes, noting the UK’s approach where the government has increased company taxes and applied tax measures to highly profitable parts of the economy.
Speaking at an Australian Business Economists event in Sydney, Dr Kennedy said Australia “needs to rebuild fiscal buffers to ensure the government can respond effectively to future crises”.
However, current commitments to additional structural spending and stronger-than-expected growth in spending on major programs will see government spending as a share of the economy remain at a higher level than prior to the pandemic.
“Most of the additional structural spending is driven by spending on the National Disability and Insurance Scheme, aged care, defence, health and infrastructure. Further pressures exist in all these areas,” Dr Kennedy said.
“The tax system is coming under pressure,” he continued.
“We will need a tax system fit for purpose to pay for these services, that appropriately balances fairness and efficiency”.
He suggested that in the light of spending pressures and the pressure on income tax arrangements, “there seems to be little case to lower taxes” including those pertaining to companies.
“The case for maintaining company tax rates is made even more compelling in Australia’s case, where we are experiencing a record level in the terms of trade and the banking sector is highly profitable,” he argued.
“The banking and mining sectors made up around 45 per cent of company tax revenue in the 2019-20 income year.”
Ultimately, Dr Kennedy urged an “ongoing review of the tax base and tax expenditures to ensure the tax system remains adequate to fund spending commitments and is equitable including from an intergenerational perspective”.
Speaking at a separate event, Treasurer Jim Chalmers acknowledged the major challenges faced by the country in the lead up to the budget.
Mr Chalmers told the inaugural Australia’s Economic Outlook that Labor will go through the previous budget “line-by-line” in an effort to redirect spending towards what he described as more productive purposes.
“It’s an observable fact that when the government changed hands a few weeks ago, it was at a time of high and rising inflation and rising interest rates, falling real wages and with around $1 trillion of debt in the budget,” Mr Chalmers said.
Labor is expected to deliver its budget “on or around” Tuesday, 25 October.
