Australia should be bold and fix its governance structure

Thursday, September 3rd, 2015

You would have seen coverage of the National Reform Summit in Sydney, which attracted a galaxy of corporate and political power players including RBA Governor Glenn Stevens, CBA chief Ian Narev, and Wesfarmers head Richard Goyder.

While politicians like Joe Hockey and Bill Shorten showed up, it’s interesting – and probably concerning – to note that it was the two national newspapers, The Australian and The Australian Financial Review, who organised the national conference to discuss much needed critical reforms.

It wasn’t the Government.

That shows a lack of leadership from the Australian Government, and indeed the Parliament, when it comes to economic reform. It is business that is concerned enough (or frustrated enough?) to run their own summit to generate ideas with the hope of stimulating growth and confidence.

“Australia presents as a motorcar that operates with square wheels”

We agree summits and conferences like this are a good idea and should be held; it’s important to get business leaders together to mobilise actions, but did the Summit address the core problem facing Australia?

A more important reform

The Summit had a clear message: reform is now urgent. It highlighted four areas of reform:

  1. Lifting productivity growth and workforce participation;
  2. Tax reform;
  3. Fiscal policy for a growing economy;
  4. Sustainable retirement incomes.

We also agree that Australia urgently needs reform to kick-start growth and create a base for sustainable maintenance of our standard of living.

We think it’s sensible the Summit identified the need to reform the Australian tax system. We note the former head of Treasury, Martin Parkinson, highlighted how Ken Henry’s tax reform proposals have in the main been ignored and this has been detrimental to Australia.

But we pose the question: shouldn’t we actually be looking to reform a constitution and governing structure that was set up 115 years ago? Does anyone truly believe that our founding fathers envisaged the world and the Australia that exists today?

Imagine if you put all those business leaders, Goyder, Narev, etc, in a quiet side room at the Summit, plus some of the deepest non-business thinkers in Australia and gave them a blank piece of A4 paper. Then you asked them to outline the structure of Government that they would adopt for the Australia they live in today.

Would they adopt the same structure that was formed some 115 years ago? Probably not.

What would we look at reforming?

What would we write down on our piece of A4 paper?

We think, for a start, that Australia’s governance is excessive at its three levels – local, state and federal. Why do we need this, and aren’t the state and local governments or councils really just conducting an administrative role?

That means the country is over-regulated and over-governed with confusing and inconsistent approaches to laws and tax.

States openly compete with each other for business through differing taxation regimes and incentives. Councils adopt planning strategies for property that belies their real role of keeping parks clean and collecting garbage.

But does all this governance result in higher productivity or does it detract from it?

Why reform the governing structure or constitution?

Australia presents as a motorcar that operates with square wheels. It is not broken, it does operate, but it could be so much better and smoother. So in addressing our problems do you merely accept that it is not broken so why change it? Or do you fix the wheels so they are circular and we roll forward a bit quicker? Or do you say that yesterday’s motorcar is not the motorcar of tomorrow? The opportunity is to fully upgrade the car and maybe we adopt an electric model or one run on solar energy.

These analogies may be simplistic but in addressing Australia’s problems then surely the smartest people of today and our elected politicians are entitled to change the inefficiency at its core. We suspect the core inefficiencies need a stronger solution tinkering around the edges.

The benefits of a better governing structure

Changing the structure would make it easier to implement reforms such as raising the GST rate. The decision to leave this in the hands of the states is a debacle. It stifles a coordinated taxation adjustment that includes direct and indirect taxation.

There should be a national endeavour to always do better, yet the way we’re set up doesn’t allow that.

7 Responses to “Australia should be bold and fix its governance structure”

  1. Tom says:

    – Increase and broaden GST, compensate low income earners
    – Cut company and income taxes to encourage risk taking and make us competitive with Asian rates
    – Remove the 97 taxes that only collect 10% of revenue
    – IR changes, small companies with 15 employees or less exempt from unfair dismissals, Sunday penalty rates time and a half
    – Cut federal duplication of state health and education services, particularly in administration.

    Take it to the election. Of course, Labor and the Greens will run scare campaigns on everything, but if you lose at least you lose putting forward a positive plan.

  2. Laurie says:

    Reform should look at substantial overhaul of structures and processes for IR, and critical GOV spending (education, healthcare including aged care).

  3. Danny Hannan says:

    Instead of a GST, profit tax and income taxes, and the dozens of other taxes, scrap the lot and bring in a turnover tax with no exemptions and few deductions, to foster employment and manufacturing; the only deductions being wages paid and raw materials used.
    Raise the non-taxable threshold to $50,000.00.
    Bring in excise taxes as exist on tobacco, alcohol and fuel to apply to all fossil fuels as they are either imported or produced, including the fugitive emissions released and charged at a rate proportional to the global warming impact.
    Make superannuation fair for all by giving a tax discount off the marginal rate and topping up those whose rate goes negative and apply the discounted tax rate to savings as well.

  4. Ben Smith says:

    – Broaden GST base to remove exemptions on education, health and fresh food
    – Federal government to take back right to levy payroll tax, incorporate into BAS process and distribute proceeds to states to remove States eroding the base by competing against each other
    – Introduce emissions trading scheme with proceeds from carbon permit auctions used to finance CEFC operations and lending
    – Transition away from stamp duty to reliance on broad based land tax based on unimproved land value on all properties including owner occupied
    – Reintroduce taxation of superannuation earnings in pension phase at concessional 15% rate
    – Consider introducing income tax rate schedule for couples to combat high effective marginal tax rates through interaction of welfare payments and employment income
    – Remove default superannuation funds being determined as part of award process and EBAs and run Federal government tender for default superannuation fund each year
    – Make ATO the clearing house for all superannuation payments as part of BAS process and employees register super fund choice with ATO. Will remove admin of paying funds to multiple employers and assist ATO identify non-super payers faster
    – Restrict lump sum payments from super to acquisition of annuities and include family home with pension asset test

  5. MICHAEL says:

    Just focus on this:
    Tasmania with half a million people elects 12 senators;
    NSW with seven and a half million people also elect 12 senators!

  6. Dean Tipping says:

    The cause of the issues raised in the article, the discussion and why Australia is fast becoming a basket case revolves around the fundamental period or term of office of 3 years and the preference voting structure.

    In the 1st 12 months of office the incoming government has to work out the mess they’ve been left with and come up with strategies to try and “right the ship” which they try to implement in the next 12 months in office but they can’t because people that attract a minority of the vote in their electorate end up in the Senate thanks to the “vehicle” of preference allocation. It should be straight out whoever receives the majority number of votes is the winner but that’s too simple for some I suspect.

    The last 12 months of a term of office is all about getting re-elected and thanks to social media and the media at large who, are only interested in their bottom line and getting their mugs on tv, the political landscape in Australia is now a popularity contest because 95% of Australians are that thick and ignorant of what is going on in the economy and the real world to know that what really matters is what people can actually achieve, what skills and capabilities they bring to the table and what foundations they can lay to allow the country to grow and prosper over the next 10-50 years not the next 3.

    What chance is there that a government can plan for a period beyond the short term right now? We need 5 year terms of office.

    An Aussie that lectured in China for some time made the point to me the difference between Australia and China is the Chinese are thinking 20-30 years ahead all the time whereas were only short-term focused.

    The other major inhibitor on growth in Australia is the cost of production of which employee related costs form a major component. Anyone that can read a P&L will soon realise the impact of employee costs which include the related on-costs of super, all the types of leave, payroll tax, work-cover etc etc. They add up and you can thank trade unions for driving them up over the years.

    Australians are short-term focused and dumb!!

    We have the best raw materials, climate, agriculture and the capability to be fully self-sufficient and export to the world but what do we do? Drive up the cost of production and disincentivize to the point that businesses, jobs and opportunities get shipped offshore to lower cost producing economies because it’s “wrong” and “inequitable” to have successful business people who take on the risks to provide the many jobs Australians feel entitled to and ungrateful for. Ask people that used to be employed in the textile, steel and car industries. Was their union looking long-term and concerned for the future of their members?

    With resources not as profitable as they were a few years ago you can only keep building houses for so long until there’s no one to live in them so brush up on your Mandarin because they are our likely saviours…and it wouldn’t surprise if they’ve had plans in place for this to happen all along.

  7. Alex says:

    At the start of the 1900s we were taxed 5% of gdp. By the end of the 1900s it was 30% of gdp.

    How about we give them 5% of gdp again and work from there.

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