AICD Submission to Department of the Treasury on The 2001 Federal Budget

  • Date:20 Mar 2001
  • Type:Policy & Advocacy: Submission
Submission to The Hon Peter Costello MP, Treasurer, Commonwealth of Australia, Parliament House.
20 March 2001
The Hon Peter Costello MP, Treasurer, Commonwealth of Australia, Parliament House

AICD SUBMISSION TO DEPARTMENT OF THE TREASURY ON THE 2001 FEDERAL BUDGET

The Australian Institute of Company Directors (AICD) has pleasure in enclosing its submission on this year's federal budget.

Our submission focuses on the following key issues:

    • Tighter fiscal policy
    • Sale of Telstra
    • State and Personal Tax Reform
    • Elimination of business input tax and the general tariff
AICD would be pleased to discuss these matters further at your convenience.

Yours sincerely,

John Hall
Chief Executive Officer

THE AICD:

The Australian Institute of Company Directors (AICD) is the peak organisation representing the interests of company directors in Australia. Current membership is over 15,000, drawn from large and small organisations, across all industries, and from private, public and the not-for-profit sectors. Membership is on an individual, as opposed to a corporate, basis. The AICD is a federation of seven State divisions, each of which is represented on a National Council. Overall governance of the AICD is in the hands of its National Council which is comprised of the seven division Presidents, plus a National President, two National Vice-Presidents and a National Treasurer. AICD has several national policy committees, focusing on issues such as corporations law, accounting and finance, environment, taxation and economics, and national education, along with task forces to handle matters such as corporate governance.

The key functions of AICD are:

    • to promote excellence in directors' performance through education and professional development;
    • to initiate research and formulate policies that facilitate improved director performance;
    • to represent the views and interests of directors to government, regulatory bodies and the community;
    • to provide timely, relevant and targeted information and support services to members and, where appropriate, government and the community;
    • to maintain a members' code of professional and ethical conduct;
    • to uphold the free enterprise system;
    • to develop strategic alliances with relevant organisations domestically and internationally to further the objectives of the AICD.
EXECUTIVE SUMMARY

The Australian Institute of Company Directors urges the Government to address four principal issues in the 2001 Federal Budget and the surrounding policy arena:

    1. Fiscal policy should be tighter than the current stance indicated by several recent Government measures.
    2. Telstra should be sold and all proceeds used to repay government debt.
    3. State and personal tax reform – needs to be progressed.
    4. The three per cent duty on business inputs should be eliminated as a priority and the five per cent general tariff rate should be removed in the near future.

Each of these issues should be addressed with the objective of increasing Australia's international competitiveness and boosting our ability to generate wealth with minimum of impediment.

1. FISCAL POLICY SHOULD BE TIGHTER

The AICD urged the government in last year's federal budget to wind back government spending so as to eliminate the underlying structural deficit. We commented that "such a deficit is undesirable at this stage of the economic cycle".

Structural balance has not been restored and now, given the clear economic slowdown, it is vital to rein in spending. This is for two reasons:

First, the budget surplus is clearly in danger if economic growth slows and employment growth decelerates in tandem with company profits decreasing. Only by rigidly controlling expenditure will we avoid running into deficit and once again accruing sizeable government debt.

Second, with the already precarious state of the currency and the continuing escalation in foreign debt, it is imperative that international perceptions of the Australian economy are not provided with further rationale for a currency downgrade. Responsible fiscal policy is critical in this regard.

2. TELSTRA SHOULD BE SOLD AND ALL PROCEEDS USED TO REPAY GOVERNMENT DEBT

The AICD is cognisant of political reality.

In this context, the AICD encourages the government to maintain its policy of selling the remainder of its stake in Telstra. With net government debt in the MYEFO forecast to be $43.6bn, the sale of the Telstra stake and of Sydney Airport would allow the elimination of all federal debt in the near future.

Australia, with zero federal debt, would be a rarity amongst western economies: compare this to the USA and European economies and contrast it with Japan.

Further, given the repayment of state debt that is occurring with privatisation, Australia would lead the OECD economies in minimising total government indebtedness.

Australia's international competitiveness would be enhanced. Perception of economic management in Australia would be boosted. Tax would be lower for any given level of government spending.

With Federal debt removed out the AICD would support legislation restricting the Federal Government's future ability to borrow unconstrained.

While the AICD understands the need for regulatory arrangements to be put in place to ensure appropriate levels of community service obligations from Telstra, there is no inherent reason why Telstra should remain in public ownership.

On the contrary the AICD believes if Telstra does remain partly public there is a real risk its global competitive position will be undermined. Additionally, Telstra is restricted in its ability to manage its own affairs, and especially to grow its own business as it is effectively prohibited from issuing scrip to fund acquisitions.

Selling the balance of the Government's Telstra holding and repaying debt would, after allowing for the Telstra dividends foregone, free up approximately $2bn of annual revenue currently used to pay debt interest.

The AICD proposes that this revenue should be applied to the removal of bank accounts debits tax (via varying state grants) and a reduction in the medicare levy.

3. STATE AND PERSONAL TAX REFORM – NEEDS TO BE PROGRESSED

The AICD continues to offer its full support for the Government's proposals on business tax reform.

The AICD also applauds the Government's efforts in introducing a GST and reforming the social welfare system.

However, the AICD believes strongly that Australia still needs of the following critical State and personal tax reform initiatives:

    1.Remove bank account debits tax, via increased untied State Grants funded by the net interest savings resulting from the repayment of all Federal Government debt:
    2.Reduce, and ultimately remove the medicare levy funded by the balance of the net interest savings resulting from the repayment of all Federal Government debt.
    3.Reduce the two top personal marginal tax rates to 40%, funded by:
    • restricting personal income tax deductions to any excess over $1,000
    • replacing the tax free threshold with a closely targeted rebate only available to certain taxpayers, and thereby
    • eliminating the requirement for most Australians to lodge tax returns, saving ATO costs.
    4.Remove the Superannuation Surcharge, funded by raising tax on superannuation funds to 17%.
    5.Remove entertainment as a fringe benefit subject to Fringe Benefits Tax with a reversion to the simple non deductible regime, a simplification initiative all the more vital given the pending introduction of GST.
    6.Remove car parking completely as a fringe benefit subject to Fringe Benefits Tax (without making it subject to tax in the hands of individual employees), another simplification initiative required prior to the introduction of GST.
    7.Encourage the states to remove:
    • stamp duty on business conveyancing
    • health insurance levies
    • partial reduction of payroll tax.
The Commonwealth should support those states that reduce the business taxes which are a heavy burden on businesses in those states.

4. THE THREE PER CENT DUTY ON BUSINESS INPUTS SHOULD BE ELIMINATED AS A PRIORITY AND THE FIVE PER CENT GENERAL TARIFF RATE SHOULD BE REMOVED IN THE NEAR FUTURE.

The duty on business inputs is an impost that adds to business costs. Yet it does nothing to protect Australian industry, because there is no domestic manufacture of these inputs. This duty represents an impediment to economic efficiency and a negative influence in terms of international competitiveness. We strongly support its removal.

The five per cent general tariff rate is an anachronism and the government has already stated that it accepts the Productivity Commission's views that there are benefits to be obtained from its removal. Notwithstanding that the benefits may be relatively small, by dint of the tariff rate being relatively low, there is little justification for leaving this outdated tariff barrier in place.