The Federal Government should apply the same boldness that has seen negative gearing included in its tax review to the vexed issue of state payroll taxes and the GST, according to Business SA’s director of policy Rick Cairney.

Cairney said the Government had shown political courage in ruling nothing in or out of the current scrutiny of the tax system, including negative gearing which previous governments had been reluctant to review.

“However, Business SA is not convinced the Government has a strong appetite to push the states over payroll tax reform or reform of the GST,” Cairney said.

“One of the original aspirations when a consumption tax was first mooted in the 1980s was that it could replace state payroll taxes which are simply a tax on employment with no inherent logic in terms of being an efficient tax tool.

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“The Government acknowledges that Australia is more reliant on payroll tax than other OECD countries but has a lower reliance on consumption taxes.

“In fact, Australia’s GST rate is approximately half the OECD average although the coverage of the GST at 47 per cent of all goods and services is only slightly below the OECD average of 55 per cent.

“New Zealand on the other hand has GST coverage of 96 per cent , second only to Luxembourg amongst OECD countries.”

Cairney said “it’s clear that the Government recognises many of the key issues and inconsistencies surrounding the existing tax system and how that is limiting economic growth”.

“Bracket creep is portrayed as a growing problem which impacts upon workforce participation while the large gap between the highest marginal tax rate (47 per cent) and the company tax rate (30 per cent) is said to be encouraging tax avoidance.

“The Government proposes that tax on savings should give people an incentive to save for the future, acknowledging the failings of the existing system which taxes interest on bank accounts at the personal income tax rate.

“The paper highlights that every dollar collected in company tax reduces living standards by 50 cents because of reduced capital investment decreasing the labour productivity and output of local workers which, in turn, reduces their real wages. More broadly, the Government implies that the taxes with the highest cost to economic growth are company tax and stamp duties.

“Australia’s company tax rate is considered increasingly uncompetitive which makes it hard for Australia to attract international investment. Most notably, the UK, Canada, New Zealand and the Netherlands are all shown to have lower company tax rates than that of Australia.

“As we have maintained all along, businesses need the optimum mix of State and Federal taxes and the Federal Government must take a leadership position in the tax debate to ensure political differences over various taxes do not stand in the way of delivering a tax system which supports business growth, particularly for South Australia which already has an older population and lower workforce participation rate than the national average.”