Horrible truth hiding in tax tussle, warns Ken Henry

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

Dr Henry will today say the debate overlooks a reality 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 in Melbourne, 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 as part of a broader policy reform program.

Dr Henry authored the last substantial review of 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, according to a copy of speech notes. “There is good reason to think that a lower company tax rate will drive a faster rate of investment and labour productivity growth.”

But broader 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.

“So instead, we have chosen to have an argument about which tax rate should be cut first: company tax or personal income tax.”