Coalition Senators' additional comments

The first point of tax reform is to create certainty

1.1A government that breaks it promises to the Australian people on tax creates an inherent uncertainty that will stifle efforts for reform.

1.2Over the course of the last term, the Labor government has shown a preference for redistribution rather than reform, and complexity over simplicity.

1.3Labor’s stage 3 changes not only broke a promise made over 100 times, they removed simplicity from our tax system. Jim Chalmers and Anthony Albanese are the first Treasurer and Prime Minister to add a tax bracket into the law since 1993 – and the first to lower the top income tax threshold since 1984.

1.4Labor’s super tax change broke another unequivocal commitment and seeks to implement an unprecedented example of taxing unrealised capital gains into our tax system. Further, the measure adds complexity and inequity - unevenly, and unequally taxing people on the basis of their career, their fund, and their age.

1.5Labor’s changes to franking credits not only broke a clear election promise but have added complexity to how companies manage their capital and attract retail investors.

1.6Already, the Labor government is tilling the soil to break further tax promises around negative gearing and capital gains tax concessions on the family home, which were ruled out comprehensively before the last election.

1.7These do nothing but erode Australians confidence in politicians and stifle sensible discussions about tax reform.

The Coalition delivered significant reforms to the tax system in government

1.8There have been significant developments in the tax system since 2013.

1.9The Coalition led substantial tax reforms between 2013 and 2022, including:

Introduced and lowered the small business company tax rate from 30% to 25% for businesses with a turnover of up to $50 million;

Restored and expanded the small business income tax offset;

Restored and expanded the instant asset write off;

Reduced the personal tax rates for 95% of Australians, handing back years of bracket creep, which Stage 3 is an important part of;

Reforming the Research & Development Tax Incentive to drive more investment;

Establishing new tax rules around Venture Capital to unlock private investment and drive business creation;

Commencing major initiatives to address base erosion and multinational tax avoidance, including BEPS and MAALs; and

Repealing Labor’s industry specific and productivity sapping taxes on Australia’s mining, energy, agricultural and manufacturing industries.

1.10These were positive reforms that supported aspiration, investment, business creation and let hard working families keep more of their money.

Discussion of the future tax system need governments to get real on spending

1.11The future of the tax system cannot be discussed without a real discussion about what the sustainable level of government spending is.

1.12Too much government spending puts upward pressure on inflation and prices and crowds out the private sector, which is the source of most tax revenue.

1.13The September National Accounts for 2024 show public spending has reached a record level, and the complementary Labour Account shows that government linked job growth made up 91% of all jobs growth in the September quarter of 2024.

1.14There is precious little low hanging fruit in the tax system to fund this expansion.

1.15Australia already has high rates of income tax and one of the world’s highest company tax rates.

1.16Commodity fuelled tax windfalls are declining and policy decisions are sending the structural deficit in one direction, with Labor having spent a net $60 billion over is first three budgets according to respected economist Chris Richardson.

1.17What was supposed to be temporary response to COVID, has since become structural.

1.18It is clear this is not sustainable, risks further inflation and reduces headroom for future shocks.

1.19The first step of tax reform is to restrain the growth in spending.

1.20Australia must, at a minimum, return to the clear fiscal guardrails established by Peter Costello in 1996 and that remained a hallmark of our fiscal strategy until October 2022:

Introducing a tax to GDP cap;

Limiting real spending growth to less than economic growth;

Targeting a structural budget balance over the medium term; and

Ensuring Australia is positioned to respond to future shocks.

1.21The OECD and IMF have been consistent in their calls for stronger fiscal safeguards.

1.22 This is not about austerity today, but it is how we avoid the need for austerity tomorrow.

Tax reform must boost incentives and investment to reward aspiration

1.23True tax reform must focus on growing the pie - by incentivising investment and driving productivity in both the private and public sectors.

1.24Too often, the default assumption in tax reform is to simply increase taxes.

1.25Policymakers need to remember the source of our prosperity, laid bare in the company tax receipts in the 2020-21 ATO tax statistics:

The resources industry contributed $36 billion in tax;

The financial services industry contributed $37 billion in tax;

The professional services industry contributed $29 billion in tax;

The manufacturing industry contributed $25 billion in tax; and

Construction and retail both contributed $18 billion in tax.

1.26This is the golden goose that funds our roads, our schools, our universities, and our hospitals.

1.27A strong private sector is essential to securing the essential services Australians deserve.

1.28The Coalition’s starting point is focused on tax reform that enhances incentives and boosts investment.

1.29Our guiding principles are that taxes should be lower, simpler, and fairer:

Lower taxes – means government should strive to reduce the income tax burden on families and young Australians by ensuring government lives within its mean;

Simpler taxes – goes not just to tax design, but the complexity of the overall system. How tax is collected, and how Australians interact with the ATO; and

Fairer taxes – means giving small business a fair go, and ensuring we make multinationals and large companies pay their fair share of tax.

1.30As a first priority, a Coalition tax policy prioritises delivering for families and small business, and driving sector neutral investment settings.

1.31The Coalition’s commitment to make the Instant Asset Write Off permanent is a downpayment on this priority.

1.32This is a structural change to our company tax system that will simplify depreciation for 2.5 million small businesses. It is a major commitment, that will reward 98% of Australian businesses when they choose to invest to grow their businesses and grow the economy.

1.33The path forward for our tax system must focus on creating an environment that rewards effort, encourages investment, and makes the system work for all Australians—families, businesses, and the broader economy.