CRAIG JAMES Chief economist, CommSec
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.