Our tax total too low, says ex-Treasury guru

THE fierce debate over company tax rates in Australia obscures the fact the “total tax take is too low”, former Treasury secretary Ken Henry says.

Dr Henry says the debate overlooks a fact that “seems too horrible to admit” — that the current tax take is too small to support a spending strategy “both sides of politics have signed up to”.

In a speech to be delivered today, Dr Henry — now the chairman of National Australia Bank — will back calls for a cut to the company tax rate.

But he will say the cut is “only a small part” of a necessary overhaul of the tax system.

Dr Henry authored the last substantial review of the Australia’s tax system, for the then Rudd government, between 2008 and 2010.

Today, he will say a cut to the Australian company tax rate is inevitable.

“Of course we will have to cut our company tax rate; in a world of mobile capital, countries don’t get to choose their own company tax rate in perpetuity,” Dr Henry will say.

“There is good reason to think that a lower company tax rate will drive a faster rate of investment and labour productivity growth, and that should support higher wages growth over time.”

But larger tax and policy reforms are needed to “ensure that all Australians have the opportunity to choose a life of real value”, he will say.

“Our current tax debate appears very strange. We know the total tax take is too low, but that simple fact seems too horrible to admit.”

Dr Henry, who will speak in Melbourne at the Australian Governance Summit, will say the present tax system is not sufficiently robust to finance government spending on average through the economic cycle.

“It is not capable of supporting the medium-term fiscal strategy that both sides of politics have signed up to.

“Our tax system is too narrowly based and relies too heavily upon tax bases that are subject to international tax competition, including the company tax.”