Australia Faring Well
Kitty Miv, Editor
29 June, 2015
Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.
So, after five years of work, the UK’s Office of Tax Simplification (OTS), launched in 2010 with high hopes of hacking back the jungle of tax reliefs, has come up with… a spreadsheet! Well, excuse me if I don’t fall off my chair with excitement. This so-called complexity index is supposedly aimed at measuring the relative complexity of the UK tax system. The OTS that the spreadsheet divides the tax system into 107 (107!) different areas. Surely this statement alone is all one needs to know to conclude that, yes, taxation in the United Kingdom is very complex! The UK Government has actually had a fairly decent track record on taxation since 2010, given the size of the budget deficit it inherited from the previous administration, especially in comparison to some if its European neighbors. It has managed modest cuts in personal income tax, while corporate tax has been slashed by 8 percent. However, its record on tax simplification has been pretty dismal. Gordon Brown must shoulder much of the blame for rising tax complexity in the UK. As Chancellor of the Exchequer for ten years from 1997, his propensity to tinker with the tax system, often undoing measures he himself had brought in, saw the UK tax legislation guide swell from 5,000 pages, when Brown entered Number 11, to 10,000 by 2008. But the coalition, which the supposedly pro-business, de-regulating low-tax Conservatives dominated, didn’t fare much better. Indeed, the multitude of anti-avoidance provisions included in successive budgets and fiscal statements have probably made the situation worse. I’m not sure we needed a spreadsheet to tell us that!
There are numerous annual studies attempting to rank nations in terms of how attractive they are to do business in, and Australia fares well in several of them. For example, the World Bank’s most recent Doing Business Index, which, as its name suggests, ranks economies on the ease of doing business, puts Australia in 10th place out of 189 countries. The Heritage Foundation/Wall Street Journal Index of Economic Freedom, which measures the strength of a number of economic and other rights in 178 nations, places Australia a very creditable fourth. However, when it comes to comparing Australia’s taxes with the rest of the world, the Lucky Country fares less well. According to PwC’s Paying Tax Index 2015, Australia languishes in 39th place out of 189, with a total tax rate on an average business pushing 50 percent. To be fair to Australia, it isn’t much worse than several other advanced nations in this respect. In fact, it performs better considerably better than some – the United States for instance is 47th, Germany is 68th, France is 95th, and Japan is 122nd. Still, a corporate tax rate of 30 percent is high these days, and must be acting as an impediment to investment to a certain extent. Even the IMF urged Australia in its recently published review of the country’s economy to reduce and simplify taxes in order to help boost economic growth. And despite numerous root-and-branch reviews of the tax system by successive governments, including by the incumbent one, little has changed recently to improve matters. To a large extent, the current Government can’t be blamed for the slow pace of improvements to the tax system. It was bequeathed a legacy of plummeting tax revenues, rising expenditure, and a huge hole in the budget by the previous government. The recent cancellation of a modest 2 percent cut in the headline corporate tax rate did not win the Abbott Government many fans in the business community. But at least it has gone ahead with tax cuts . It isn’t much, but hopefully it’s the start of a longer journey of tax improvements.
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