Back
Business

Australia's Productivity and Investment Competitiveness: Budget and Reform Proposals

Generated on: Last updated: 2 sources
View source

Australia’s Economic Overhaul: Budget Reforms and Investment Competitiveness Concerns

Key takeaway: Australia ranks 21st out of 42 nations for investment competitiveness, down from 17th in 2019, amid a government push to boost productivity and cut regulatory costs.

The Australian government has announced a series of economic measures in the upcoming federal budget, including migration system changes, tax relief for small businesses, and regulatory reforms. Concurrently, the Business Council of Australia has released a report ranking the country 21st out of 42 nations for investment competitiveness, noting a decline from 17th place in 2019.

The budget and the Business Council report both address concerns regarding productivity, regulatory costs, and tax settings.

Investment Competitiveness Ranking

The Business Council of Australia's Global Investment Competitiveness Index ranks Australia 21st out of 42 countries. The index compiles data from organizations including the OECD and World Bank.

  • Trade Openness: Australia placed second.
  • Regulatory Burden: Australia ranked near the bottom.
  • Business Tax: Australia ranked near the bottom.

Countries that consistently perform well in the index include Finland, Sweden, Ireland, the United States, the United Kingdom, Canada, and New Zealand. The Business Council report attributes Australia's strong performance in trade to low tariffs and a lack of trade barriers.

"Australia's prosperity relies on foreign capital, and Australian jobs rely on investment." — Bran Black, Chief Executive, Business Council of Australia

Government Actions and Proposed Reforms

The government has implemented several measures cited in the report, including:

  • Removal of multiple tariffs
  • Passage of reforms to the environmental approvals framework to accelerate construction project applications
  • A $900-million fund for states and territories to support productivity-boosting policies
  • Improvements in processing foreign investment proposals

Tax Proposals from Various Organizations

Several organizations have put forward tax reform proposals:

  • Business Council of Australia: Proposed making capital spending fully deductible as an alternative to a corporate tax rate cut. The Council also advocates for reducing regulatory compliance costs, increasing employer flexibility in workplace negotiations, and lowering the corporate tax rate (either by cutting the 30% rate or offering larger deductions).

  • Productivity Commission: Suggested a new "cashflow" tax that would reward capital spending but increase charges otherwise. This proposal also considered raising the rate to 35% for larger businesses while cutting it to 20% for others.

  • Australian Chamber of Commerce and Industry: Recommended a universal corporate tax rate cut to 25% in its pre-budget submission.

  • Australian Council of Trade Unions: Called for higher taxes on large companies, a halving of the capital gains tax discount, and a 25% export levy on liquefied natural gas.

Treasurer Jim Chalmers has not indicated a government position on the Productivity Commission's corporate tax proposal. The government has stated it will not pursue the Productivity Commission's proposal for a new tax on company cashflows.

Budget Measures

The budget includes a productivity package that Treasurer Jim Chalmers described as a focus area. Productivity in Australia has reached a 60-year low in the last decade.

"The measures aim to save businesses money and boost Australian living standards." — Treasurer Jim Chalmers

Key Measures Announced in the Budget

  • Regulatory Compliance: The government aims to cut the cost for businesses of complying with government regulations by $10 billion annually.

  • Migration: Changes to the points test for skilled migrants and a commitment to speed up recognition of overseas qualifications. The government plans to prioritize younger migrants and those with education.

  • Small Business Tax: A permanent $20,000 instant tax deduction for small businesses acquiring new equipment or assets.

  • Other Measures:

    • Fees of up to $1,600 for mandatory Australian construction standards will be scrapped.
    • Electronic record-keeping with financial regulators will be made easier.
    • Climate-related financial disclosures will be simplified.
    • $655 million will be allocated to expand uses of the myID digital identification system.
    • A market analysis for a tokenized government bond will be conducted.

Statements from Officials and Experts

Treasurer Jim Chalmers stated that the measures aim to save businesses money and boost Australian living standards. He said the productivity package resulted from work since a reform roundtable last year. He has not ruled out pursuing corporate tax reforms to boost productivity.

Bran Black, Chief Executive of the Business Council of Australia, stated that Australia's prosperity relies on foreign capital and that Australian jobs rely on investment. He cited a figure from the Australian Institute of Company Directors indicating businesses pay $160 billion annually to comply with federal regulations, suggesting a 25% reduction target by 2030.

Martin Parkinson, former top public servant, said the points test for skilled migrants has been "bastardised" over the last decade and a half. He noted the current system does not adequately prioritize skills or experience. He welcomed the six-month acceleration for skills recognition but said it would only be effective if it leads to more approvals.

"The current tax system constrains investment and holds back productivity growth." — Danielle Wood, Chair, Productivity Commission

Danielle Wood, Chair of the Productivity Commission, said the package is a "serious attempt" to tackle productivity issues but noted implementation will be challenging. She expressed disappointment that the government decided against changes to company tax, stating that the current system constrains investment and holds back productivity growth.