CRAIG JAMES Chief econ­o­mist, Com­mSec

Money Magazine Australia - - THE DEBATE -

Idon’t be­lieve that tax cuts are re­quired to stim­u­late our econ­omy. Not that tax cuts aren’t re­quired in a medium-term sense. But they aren’t nec­es­sary to pro­vide a short­term boost to eco­nomic ac­tiv­ity. Ac­tu­ally the econ­omy is trav­el­ling very well at present. Ac­cord­ing to the lat­est sur­vey data, busi­ness con­di­tions are the best in a decade.

Home build­ing is solid in many re­gions, and sup­ported by the low­est in­ter­est rates in a gen­er­a­tion. In fact, build­ing ac­tiv­ity is es­pe­cially strong across Syd­ney and Mel­bourne.

And while con­sumers say they aren’t feel­ing es­pe­cially op­ti­mistic, they are still spend­ing. Real re­tail spend­ing in the June quar­ter was the strong­est in eight years. So while we don’t need the gov­ern­ment to slash taxes to boost eco­nomic ac­tiv­ity, changes in the tax scales – more cor­rectly, tax re­form – is in­deed a wor­thy aim.

Aus­tralia’s pop­u­la­tion con­tin­ues to age, thus putting greater re­liance on those in the work­force to pro­vide the tax rev­enue nec­es­sary to cover ris­ing gov­ern­ment spend­ing on health and so­cial se­cu­rity.

The aim should be to en­cour­age more peo­ple to en­ter the work­force and stay in em­ploy­ment. And one way to do that is to lower the top tax rate to 25-30 cents in the dol­lar and at the same time in­crease the GST to 15% or per­haps even higher. The lower tax rate in­creases the in­cen­tive to find work or to work longer hours. Be­cause they re­tain more of the mone­tary re­wards for their work ef­forts, work­ers then have a choice about whether to spend their wages and pay the higher GST rate, or save more of their in­come.

Tax cuts for busi­ness should be part of the tax re­form pro­posal, again to en­cour­age more busi­nesses to set up and em­brace global op­por­tu­ni­ties.

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