What’s next for tax and productivity reform?
Last month’s economics and productivity roundtable concluded with a clear message: the government is keeping tax reform firmly in its own hands. While the forum generated broad discussion, concrete outcomes were limited, and no significant policy shifts were announced beyond those already in motion.
One exception is the continued work with the states on implementing road user charges for electric vehicles—an initiative already in the pipeline. Beyond that, the only immediate tax measures remain the modest personal tax cuts announced during the May election campaign and the 15% tax on large superannuation balances.
A shifting tax conversation
While no headline-grabbing policies emerged, Treasurer Jim Chalmers hinted at the possibility of taking targeted tax reforms to the next election—if they prove to have sufficient community support. Notably, the concept of intergenerational equity gained traction during the roundtable, with growing acknowledgment that the tax system needs to better balance the interests of older and younger Australians.
This conversation inevitably points to some politically sensitive areas. Making meaningful changes without touching the GST or the family home’s tax treatment would likely involve reducing concessions that predominantly benefit older, wealthier Australians. Without such reforms, any attempt to assist younger Australians may either increase national debt or shift a greater tax burden onto the working population.
What could be on the table?
Between now and the next federal election, we could expect increasing advocacy from think tanks, policy groups, and other civil society organisations urging reforms to tax concessions that disproportionately benefit higher-income earners. These may include:
- Negative gearing on rental properties
- The capital gains tax (CGT) discount
- Taxation of discretionary trusts
- Superannuation tax concessions
Social security policy could also come under review, particularly mechanisms like the deeming rate used for pension eligibility and the treatment of the family home in means testing.
While the government has so far taken a cautious approach, shifting demographics may influence future policy. Millennials now outnumber Baby Boomers—a trend that could gradually reshape public sentiment and create momentum for change in these traditionally untouchable areas.
Business investment incentives
Another area of interest is boosting business investment, with proposals aimed at being revenue-neutral. Two key tools in this space are:
- Investment Allowances – These offer additional deductions for capital expenditure but are costly and may only marginally influence business decisions. They are usually more appropriate in downturns than in stable economic periods.
- Instant Asset Write-Off (IAWO) – Increasing the turnover and asset cost thresholds under the IAWO could provide more immediate and targeted support for small and medium businesses. Unlike investment allowances, IAWO changes primarily affect the timing of tax payments, not long-term revenue.
A new corporate tax model?
The Productivity Commission (PC) has put forward a bold proposal to reduce the corporate tax rate to 20% for businesses with turnover under $1 billion, coupled with a 5% cashflow tax. This model aims to incentivise continual reinvestment in capital assets—though there’s only so much equipment a business needs.
Perhaps more controversially, the PC suggests achieving debt-equity neutrality by removing interest deductions at the corporate level while also not taxing interest income. This could significantly alter financing strategies, especially for businesses that rely heavily on debt.
The proposal also raises questions about the interaction with Australia’s dividend imputation system. While company tax collected may fall, personal tax obligations for shareholders could rise due to increased top-up tax, resulting in a complex redistribution of tax liability rather than a net gain.
What to expect moving forward
While the roundtable didn’t produce sweeping changes, it has set the stage for ongoing discussions around tax reform, intergenerational equity, and business investment. As we move closer to the next federal election, watch for subtle shifts in policy positioning and growing public debate—particularly around tax concessions, corporate taxation, and wealth distribution.
At Regency Partners, we’ll continue to monitor these developments closely and keep you informed about what they could mean for you, your business, and your financial planning.
