Business

Save
Print
License article

We need to talk about the GST, Ken Henry says

NAB chairman Ken Henry has urged political and business leaders to revisit the "politically difficult" issue of raising and broadening the GST to remedy Australia's "too low" tax take, while decrying governments' reluctance to act on challenging issues because they were seen as "too hard".

He has warned that without tax reform Australia risked losing the capacity to fund its infrastructure and health, education and welfare systems - saying that "if you lose the capacity to finance government on a sustainable basis then government fails".

And he said that while the findings of the 2010 Henry tax review remained current, he would not be opposed to an "inclusive" new tax inquiry - taking in community groups, business, the welfare sector and the federal and state governments - "that seeks to achieve support for a broad based tax reform package".

Dr Henry, the former Treasury secretary who led the previous Labor government's Future Tax System review, reiterated his call this week for widescale tax reform beyond corporate tax cuts - including a broader base and higher rate of tax on consumption, pointing to the cash flow tax proposed in the Henry review - and said the nation needed political, business and community leaders who "relished the opportunity to do really difficult things".

"Governments are acting as if they lack power," he told Fairfax Media at the sidelines of the Australian Institute of Company Directors conference in Melbourne, where he gave the keynote speech on Friday. "As if they lack power to do things. Everything is too hard. Everything that needs to be done is too hard. So these days, if somebody in the community, or could be in business, says 'X needs to happen', the response is, 'well hang on that would be political suicide'."

Dr Henry pointed to John Howard's decision to introduce the GST as an example of leadership, saying "[Howard] understood that it needed to be done and he wanted to demonstrate that he was capable of doing it."And that’s what we need, that’s what the country needs, leaders in politics, also in business and also in the community sector who relish the opportunity to tackle the difficult challenge."

Advertisement

Later at the conference, he reiterated that the purpose of tax was to finance government - and losing that capacity meant that government would fail. "I'm not talking here particularly about the government of the day failing, though that would obviuously happen, I'm talking about small 'g' government fails.

"Government loses the capacity to provide the infrastructure, the education sytems, the health systems, the social support system, the social welfare system that we have become accustomed to for good reason - these things underpin the living standards we enjoy today."

His statements followed comments on Friday by former New Zealand prime minister and newly-appointed ANZ director John Key, who in 2010 cut the corporate tax rate and raised his country's GST from 12.5 per cent to 15 per cent. Mr Key, speaking at the AICD conference, said that Australia should lower personal income taxes and raise the GST, which was an "immensely fair" tax. But he said it was a more complex issue in Australia than it had been in New Zealand.

While emphasising the need for broad tax reform - especially on some state taxes like stamp duty and insurance taxes - Dr Henry said Australia did not "have a choice" about cutting corporate tax rates, saying that "we cannot remain oblivious to what’s happening with company tax rates around the world".

He told Fairfax Media that given it was so hard for governments to push "ambitious policy reforms", business had to "step up" and make the case for change in the national interest. But if it was to do so in a credible way, it had to "take ownership" for all of the consequences of business activity, positive and negative.

This included taking responsibility for cases of poor conduct, and being open and explaining major changes to workforce size and structures - such as NAB's current downsizing of 4000 jobs over the next three years due to technology advances including automation.

"Some people have questioned why NAB would stand up and say that over the next three years we’re going to reduce the size of our workforce by 4000 people - the reason they’ve questioned it is because they know in an average year we lose about 3000 people," he said.

"In three years we’d lose 9000 people. We could shut up and not say a word about it and downsize NAB by 9000 people, and insead we’ve taken ownership of it... we’re going to be open and explain which jobs are going and the reason why they’re going."