|Submission No. 257||Back to full list of submissions|
|Download in either PDF or RTF format|
|15 April 1999
Dr. A. Preston
e-mail address: rbt&treasury.gov.au
The Institution of Engineers, Australia has not made a formal submission to the review of Business Taxation The Ralph Committee. The following submission has been prepared by a senior Fellow of the Institution to highlight some of the issues germane to the Review, and to make a valuable contribution to the efficacy of the Review process.
The following submission on the Review of Business Taxation is forwarded in response to the call for Submissions to-A Platform for Consultation.
In supporting the Mission and Goal Statements of the review and the proposed 30% company tax rate & Capital Gains Tax (CGT) relief, I note in particular that Accelerated Depreciation on fixed plant and equipment and retention of the 125% R&D Taxation benefit could have substantial benefits to our economy. The long term benefits of Accelerated Depreciation on fixed plant and equipment and the 125% R&D Taxation benefit needs further consideration. It is believed their inclusion with a 30% company tax rate & CGT relief would improve the international competitiveness of the economy in order to attract capital for investment and maximise the opportunities for job creation. I discuss each of these issues below.
Australias manufacturers and industry generally must either maintain their international competitiveness or become internationally competitive if they are to retain or build market share. Australias manufacturing and industry sector contributes much less to our economy than this sector does in other competing nations. This is highlighted by the following graph which shows Australias manufacturing sector contributes between 3 to 10 percentage points less to GDP than in other competing nations. (refer graph 1 below and table A in attachment 1).
Adopting the countries depicted in Graph 1 as a bench mark shows that Australia is under performing in the manufacturing and industry sectors. To achieve international competitiveness means our manufacturing and industry sector must invest in plant and equipment which is of world class. In recent times there has been considerable international change in technology in; the motor vehicle industry, the steel industry and the textile clothing and footwear industries. New technology incorporates robotics, computerisation and new technological processes. Economies of scale have sometimes changed with the new technology; new technology brings lower operating costs as well as often smaller economies of scale than the older plants. The economic life of plant and equipment is affected by the rapid changes in technology.
Unfortunately many manufacturers and industries in Australia still have plant and machinery which is not of worlds best standard and consequently work practices also languish behind worlds best practice. Resolution of this issue is not simple. This is a complex issue as has been highlighted by the recent reviews within Australia into the Motor Vehicle Industry, and the Textile Clothing and Footwear Industry. Any changes to the tax system must give due cognisance to the structure of the economy and the need to encourage manufacturers and industries to continuously update their plant and equipment as technology changes. As Australia is reducing its tariffs it is imperative that manufacturers and industry in general adopt worlds best leading practices. This will require considerable capital investment in new fixed plant and equipment. Manufacturers and industry in general need some incentives other than the threat of tariff reductions to make this investment. Such investment is not only in the manufacturers/industries interest but is also in Australias interest.
Accelerated depreciation for fixed plant and equipment (equating to an economic life which will probably be substantially less than its physical life) is an attractive way of stimulating investment in new current technology. Such stimulation should result in;
It is acknowledged the updating of fixed plant and equipment may result in an increase in imports. This may have a short term affect on the balance of payments. However this should be rectified in the longer term, as manufacturers and industry in general become more internationally competitive. As a result there should be an increase in both import replacement and exports. The increases in both import replacement and exports minus the cost of importation of fixed plant and equipment is anticipated to ultimately have a positive affect on the balance of payments.
It is requested that the Review Team;
RESEARCH AND DEVELOPMENT
Research and Development (R&D) does not appear to have received specific mention in the review to date. R&D is the precursor to the development of new products and markets, it will also generate growth in the economy and job creation. Whilst it is acknowledged that the Government has recently done much to stimulate R&D activity through outlays via R&D grants, the Innovation Investment Funds etc we must recognise that Australian Business sector still performs poorly by international standards in its investment in R&D. The following table shows that investment in R&D by Australias Business sector ranks a lowly eighth out of eleven OECD countries.
Research and Development is an imperative for a healthy Australian economy. R&D is important to all industry sectors. It is the difference between Australia retaining and/or gaining international leadership or developing an unacceptable followership and consumption culture.
It is requested that the Review Team;
Adoption of a 30% company tax rate & CGT relief together with;
should result in an expansion in the economy and generation of employment. It is requested that the Review Team incorporate the above in their recommendations.
Benchmarking our economy against those of our international competitors shows that Australia ranks a lowly 15th based upon GNP (measured at PPP) Per Capita. The leading country Singapores GNP per Capita is 1.47times that of Australia. Based upon GDP per capita Australias relative position is still 15th compared to our international competitors. Switzerland which has the highest GDP per Capita is double that of Australia.
Clearly there is significant opportunity to expand our current economy. It is requested that the Review Team in developing options based upon a revenue neutral basis should undertake economic modelling of the benefits of a 30% company tax rate & CGT relief, accelerated depreciation for fixed plant and equipment and retention of the 125% Tax Benefit to our economy. The economic modelling should determine how long it would take this scenario to become revenue neutral. Finally it is requested that the Government should be advised of the affects of this scenario on the economy in general and on its revenue.
E. J. (Joe) Abercrombie FIEAust, CPEng