Spending under the spotlight as tax reform hopes fade | KPMG | AU

Spending under the spotlight as tax reform hopes fade

Spending under the spotlight as tax reform hopes fade

The Treasurer, in his speech at the Press Club in Canberra yesterday, emphasised the need for restraint on public expenditure. I agree with him on that point. But it is undeniably disappointing that the debate now seems to be moving away from necessary tax reform, which we have been building up to for over the past 2 years.


Partner, Australian Tax Centre

KPMG Australia


Also on KPMG.com

Australian Parliament, Canberra

There are few moments in history that are ripe for tax reform, and with a healthy lead in the polls, this can still be one for the Coalition Government. A second term in office inevitably becomes more about holding onto power.

The simple fact is that tax reform is essential sooner rather than later. The longer we leave it, the harder it will be, and the more it will cost. Tax reform should be done on a ‘whole of system’ basis rather than picking off component parts. Our two major periods of successful tax reform in 1985 and 1998 were done this way.

It is unfortunate that Goods and Services Tax (GST) reform has been taken off the table. The Government seems to have done this because it does not pass the test on a single trade-off in terms of winners and losers. Raising the base and rate of GST is the only way to get sufficient revenue to make other necessary tax cuts, but needs to be done by addressing the tax system in its entirety, as well as the transfer system and health and education budgets.

Lack of action on corporate taxes is also damaging our economy. Some voices caution that there is no evidence of foreign investors staying away from Australia, so why invest precious resources on cutting company tax? But my answer would be that with many countries lowering their corporate tax rates, staying the same is effectively falling behind.

While there may be no current shortage of overseas capital looking to find a home, things change quickly in the international investment environment and Australia needs to have a competitive rate, given our position as a net importer of capital. A long term plan of company tax reductions is needed.

As a nation we seem to have parked these issues – and many others. The time will come when we have to deal with them, and the sooner we start, the better.

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