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Submission No. 48 Back to full list of submissions
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23rd December 1998

The Secretary
Review of Business Taxation
Department of the Treasury
Parkes Place
CANBERRA ACT 2600

 

Dear Sir

SUBMISSION ON DISCUSSION PAPER "A STRONG FOUNDATION"

Having read the discussion paper "A Strong Foundation" I am in full agreement with the fundamental objective of the review, to improve the Australian business tax system such that:

    • Economic growth is optimised
    • Equity is ensured
    • The system is simplified

My concerns lie in two areas:

    • The review approach – it appears to be very limited which is most unfortunate as this is a crucial factor in this country’s future
    • The composition of the review committee

I will summaries these concerns separately and in the above order.

  1. Limited Approach

Whilst the discussion paper is extensive, thorough and detailed, I am left with the overall impression that the committee intends closing off most options, some in my view, well worth consideration. Further it appears intentions are to restrict the review to a modest reduction in corporate tax rate, off-set by reduction/elimination of tax concessions, with a back-ground of "revenue neutrality". Such an approach would be regrettable and is unlikely to result in achievement of the agreed objectives of economic growth, equity and simplicity, to the extent I believe possible.

I base my conclusion that the review is not intended to be adventurous on page 4 of chapter 5. In half a page the possible, but extreme, idea of zero corporate tax is dispatched using three reasons which, separately and jointly, are insufficient to justify this concept not being thoroughly assessed. I will consider each of these reasons separately:

    • The fact that business tax exists and is "well understood and widely recognised" is, in itself, no reason for it to be continued. Death duties and Gift taxes were discontinued. Payroll taxes are well recognised and understood but all governments are aiming at elimination. On the other side of the coin, the absence of capital gains tax, F.B.T., bank transaction taxes were well recognised and understood, but this did not prevent their introduction.
    • The delayed timing of government revenue collections if the intermediate step of business tax is eliminated, is an argument of some merit. However, this should be reviewed thoroughly. It could be argued that if the reduction of business tax to zero was introduced over a number of years (5-8) the delaying effects would be greatly reduced, eliminated or even reversed. What is missing in the simplistic approach in the discussion paper is a consideration of the very positive effect of an announced zero-tax regime in the future on business investment decisions within Australian and foreign corporations.
    • The third reason for not considering the zero-tax option, loss of revenue to foreign treasuries, falls to the ground if with-holding tax, at an appropriate level, is introduced on all dividends and investment funds flowing off-shore. Only retained earnings invested in Australia could be free of business tax. Dividends paid to Australian shareholders could, of course, be taxed in the hands of the recipient.

There is no doubt that a zero business tax regime in Australia, with, of course, the total elimination of concessions, grant payments etc. would result in the simplest taxation system of all and would greatly boost economic growth. One only has to look at what has been achieved in the Republic of Ireland when they reduced tax on manufacturers from 36% to 10% to realise what can be achieved. The question of equity is also easy to defend when business is booming, investment is high, foreign company’s are using Australia as their preferred base for their Asian activities and unemployment is low.

However, even if a zero-tax regime is simply too much of an ask, surely it is now time to look at considerably lower rates, such as 10-20%, coupled with no tax concessions (and grants). Anecdotal evidence from business associates in U.S. leads me to believe that each time the capital gains tax rate has been reduced in that country revenue from that tax source increased. Now is the time to thoroughly assess this phenomenon in relation to both business taxes and capital gains tax.

 

  1. Review Committee Composition

Whilst the three committee members are well respected, successful business managers/directors they are all drawn from similar backgrounds. The "Big End of Town". Fundamentally they are, or have been, salary or professional fee earners. All have big business experience which usually results in a certain way of thought. Whilst there is certainly a place for this type of background on the committee my concern is it is represented by 100% of members. My experience with this type of career-man is they do not understand entrepreneurship. Nor do they understand the motivations and problems of small to medium enterprises.

Robert Gottleibsen, in his BRW "Comment", has periodically discussed the problems with Australia’s business and income tax systems as they impinge on S.M.E.s and entrepreneurs. He is absolutely right. Australia’s current tax regime is a dead-hand on enterprise in this country. And it is entrepreneurship and high-tech, high-growth, globally orientated companies that could greatly contribute to this Country’s future, as they have in the U.S over the last decade, if Australia had a supportive tax system.

My concern is that none of the three committee members come from career backgrounds that would lead to an understanding and emotional appreciation of these issues.

I do, however, appreciate that these comments on committee composition should be addressed to the Treasurer and not the review committee. I also wish the committee the very best in their vital deliberations.

 

Yours sincerely

 

D.A Harwood

Executive Chairman

Minelab Electronics Pty Ltd

 

Brief notes on Minelab and D.A Harwood

Minelab Electronics is a privately owned, Adelaide based, company which is recognised internationally as a "centre of excellence" in metal detection.

The company was recently awarded as the "Telstra Australian Small Business of the year for 1998.

It was also recognised recently as the fastest growing manufacturing company in South Australia.

Denis Harwood has had a career in business management, business consulting, venture capital investment and property development. Some key positions/activities:

    • Simpson Pope – Factory management
    • P.A management consultants – 13 years
    • Kinhill Pty Ltd. – C.E.O. – 3 years
    • Venture capital group – 8 years – some companies initiated
    • Vision systems (ADPRO)
    • Control Systems International Inc. (Dallas, Texas)
    • Minelab Electronics Pty Ltd
    • Property Development involvement
    • Alice Springs Sheraton
    • National and Cape Schank Golf Resorts
    • Various Townhouse Developments