Federal Treasurer Joe Hockey explains why Australia's tax system is currently designed for a 1950s economy and is in urgent need of reform.
Today, global disruption is the new black. Business models are being turned on their heads and consumers now march to the beat of innovation. Disruptors improve the daily life of consumers, and challenge the conventional role of government. Today's small business start-ups and entrepreneurs are tomorrow's global disrupters.
In May, on Budget night, I announced a $5.5 billion package to help small businesses in Australia invest more, grow more, and employ more. There were universal small business tax cuts to put more money back into the business. Of course, the centrepiece was that all small businesses can now immediately deduct assets up to $20,000 up until the end of June 2017.
We are also exempting small business from Fringe Benefits Tax on work-related portable electronic devices. I mean how ridiculous that you have a mobile phone but a second device such as a tablet, attract FBT. So we've abolished all of that, because the world is changing and we've got to keep up.
Then there is tax reform. Our tax system was designed for the 1950s economy, not for the 2050s economy. That's why we have announced six key principles. First, tax reform must promote a stronger economy, building jobs, growth and opportunity. Second, any reform must be fit for purpose for the modern digital economy.
Third, tax changes must encourage workforce participation and ensure families control their own money. Fourth, any reforms must support the principle that you're not taxed until you receive the economic gain. Fifth, reform must encourage innovation and opportunity, and reward for effort. Sixth, as best as possible, the revenue-raising capacity of each tier of government should be aligned to responsibilities of funding and service delivery.
The initial discussion paper that we released on taxation, has largely come to an end, and we're now moving to the options stage. We received more than 800 submissions . And of course, as we know, whether they're small or large businesses, global firms are becoming more mobile every day.
Our tax policies alone, won't determine how much of the global talent pool is attracted to Australia, but our tax rates shouldn't be set at levels that push talent away. For instance, in Australia, 12 companies pay one-third of all company tax. That is, out of 800,000 Australian companies only 12 pay one-third of all company tax. That's a huge structural risk for Australia.
But I want to say to you, there is no silver bullet. Whether it be in corporate tax, or personal income tax. Only 10 per cent of Australian workers pay half of all personal income tax in Australia, 10 per cent. Personal income tax is by far the largest tax that is collected in Australia, around $170 billion, half of that comes from 10 per cent of the workforce.
Good reform, long-lasting reform, must be taken in incremental steps.
We need to ensure that there is an even playing field between small business and the large multinational enterprises, to ensure that everyone pays their fair share of tax. We're committed to improving the tax system by ensuring the GST applies to digital products and services imported by Australian consumers.
We've now found a way to ensure that those providing goods from overseas, into Australia, do not get any advantage out of the tax free threshold. This is hugely important for small business.
It is also the case that multinationals have to pay their fair share of tax in Australia. And on Budget night I announced an initiative where 30 companies in particular are not able to engage in behaviour that ensures they don't pay their fair share of tax.
Lower, simpler and fairer taxes, but that has to apply to everyone.
About the author: Joe Hockey was sworn in as Treasurer on September 18, 2013.
He was first elected to the Australian Parliament in 1996 and following his re-election in 1998, was made Minister for Financial Services and Regulation.
He has since held a number of Ministerial portfolios including Small Business and Tourism, Human Services and Employment and Workplace Relations. Following the 2007 federal election Hockey held a number of senior shadow Ministry portfolios before being appointed Shadow Treasurer in February 2009.