The Grattan Institute says broadening GST and increasing workforce participation for women and older Australians are the three reforms the Federal Government should be prioritising.
In a report published today, Game-changers: Economic reform priorities for Australia, the think tank says the measures combined have the potential to increase the size of the economy by more than $70 billion within the decade.
The report argues that if reforms are to be prioritised, then those with the potential to have the biggest impact on gross domestic product in the near-to-medium term and where there is the most confidence in the ability to implement them successful should be prioritised.
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Grattan Institute chief executive John Daley told SmartCompany if a government was serious about growth it needed to reform the tax mix and increase workforce participation for women and older Australians, as nothing else was big enough to change the game.
Daley says the Grattan Institute’s proposals would have a positive impact on SMEs.
“These reforms would be material for small business,” Daley says.
“Firstly, in terms of the recommendation on tax reform to essentially broaden the GST but reduce corporations tax. That would be a material change to corporate income tax. For small businesses, that creates quite a substantial incentive to do more things, which makes the small business more prosperous but also makes the community better off.”
The institute proposes broadening the GST to cover all consumption, as the existing GST excludes 40% of consumption, notably education, health and fresh food.
Removing these exemptions would increase GDP by $20 billion per year while, at the same time, corporate taxes could be reduced from around 30% to 23% and income taxes reduced.
Daley says people would end up paying “a little bit more” for education and health, and at the margin there would be less fresh food sold, but that overall there would not be a big impact from broadening GST.
“On the other hand, people would essentially have more money in their pocket. The whole point of these reforms is we are doing them to increase economic growth,” he says.
The Grattan Institute’s proposed reforms to encourage women and older people to stay in the workforce would also benefit small business, according to Daley.
The report proposes altering access to Family Tax Benefit and Childcare Benefit and Rebate so that the second income earner in a family — usually, but not always, a mother — takes home more income after tax, welfare and childcare costs.
“That would also have an impact as there would be more women who would have an incentive to go to work and be available as employees to small business,” says Daley.
“At the moment, the dominant reason employees retire is that they reach retirement age and many small businesses are quite keen to keep those people on. They are terrific employees and, at the moment, they retire earlier than the businesses would like.
“If we move the pension age and improve access to superannuation, we will see more older people staying in the workforce and business will be better off.”
In a rare moment of bipartisanship, both Prime Minister Julia Gillard and Opposition Leader Tony Abbott rejected the suggested reforms this morning.
However, Daley is undeterred and says the next step is to have a public conversation about the issues, as the report tries to suggest ways to make a real difference to the Australian economy.
“If you look at the history of the Australian government, they have taken on a whole series of tricky reforms in the past: Introducing a GST was, at the time, extremely unpopular but the government who did it got re-elected,” says Daley.
Peter Strong, executive director of the Council of Small Business Australia, says he does not support the proposed GST reforms.
“It will have people debating these issues forever, when I would prefer they talked about other things, like workplace reform and red tape removal,” says Strong.
“If the Grattan Institute is looking at broadening GST, they should look at charging it on overseas sales.”
However, research commissioned by CPA Australia supports increasing GST and abolishing inefficient taxes in a bid to significantly boost productivity.
“Our research helps demystify concerns that an increase in GST would hurt Australians,” said Alex Malley, chief executive of CPA Australia.
“We must look at how we can eliminate many of the inefficient taxes Australian businesses face and this includes a serious discussion on the GST.”