Commonwealth Bank CEO Matt Comyn unveils bold tax reform proposal

It is rare for Australian business leaders raise their hands with some suggestions as to how Australia’s tax mix should change to make the country grow faster and become more efficient.

So, the decision by Commonwealth Bank (ASX: CBA) chief executive officer Matt Comyn to last week put forward some detailed tax plans was a brave one – particularly when you consider how politically dangerous tax changes have proved to be, almost certainly costing Bill Shorten an election win.

As attempts go it was a worthwhile one too, although far less comprehensive than the 2010 Henry Review which famously ended up gathering dust and largely ignored, other than for the ill-fated mining tax.

A simpler personal tax scale

In simple terms Mr Comyn’s personal tax reform was to make the first $20,000 of earnings subject to no tax, 20% tax on incomes above $20,000 up to $80,000, 30% on incomes above $80,000 up to $300,000 and a top rate of 45% above that.

All personal income tax deductions would be abolished, with the exception of charitable donations.

The GST would be increased and broadened with the rate increased from 10% to 15% raising $60 billion – $20 billion of which would be spent to compensate low-income pensioners and welfare recipients.

The company tax rate would stay at 30% but the state payroll tax and stamp duties on property purchases and insurance would be scrapped because they made Australia less competitive.

Tech tax and better Government spending

The big multinational technology companies such as Apple and Facebook would be forced to pay multiple billions in “tech tax” on their local turnover or payments made to offshore affiliates and there would be a big crackdown on cash economy payments.

Government spending would also be made more streamlined and efficient, particularly in fast growing expenditure areas like the NDIS.

Comyn was quick to admit that his plan was effectively a first draft and that more experienced tax reform experts would be required to knock it into shape.

However, it is very refreshing to see someone at least pointing out the missed opportunities of tax reform, which has been firmly stuck on the back burner in Australia, arguably since the days when Paul Keating was Treasurer.

Will Chalmers follow the Keating tax reform model?

Given that the current Treasurer, Jim Chalmers, is an unashamed Keating fan, it is perhaps timely for the Comyn plan to be raised just after Treasurer Chalmers admitted that Australia’s predicted rate of economic growth could use some expansion.

So how does the Comyn tax plan measure up and what are its strengths and weaknesses?

One of the strengths is the relative simplicity of the plan, which would primarily show itself in a much simpler way of calculating and arriving at a tax return.

The current system of a range of cumbersome and unwieldy deductions has resulted in tax time becoming a much more complex affair than it should be.

Rather than laboriously hunting down documents and coming up with various structures for tax purposes, the “no deductions” rule would arguably result in a much easier process for the majority of working Australians who would probably be willing to trade off a few hundred dollars of administratively difficult deductions in return for a push the button type of tax return.

It would also have the benefit of reducing the need for accountants and tax agents who are involved in producing what could be uncomplex tax returns every year.

Compensating the poor a difficult task

The increased GST is regressive and would hit those on lower incomes hardest so the impact on the poor would need to be carefully managed but it would also raise more tax from those who are currently getting off very lightly such as wealthy retirees and those who frequently use the cash economy.

Raising taxes on the technology companies would be difficult but not impossible, with the fact that they are largely offshore multinationals helping to mitigate any blowback.

At last, goodbye to terrible state taxes

Getting rid of inefficient state taxes on payrolls and property transfers is a long overdue reform that would be a big help in improving labour mobility and providing appropriate housing.

Keeping the company tax rate at 30% and also the top tax rate at 45% – without indexing the tax scales to reduce bracket creep – is arguably a big miss but might help to make the entire package more palatable, given those on high incomes would still bear a large share of the tax burden.

However, having such a high top rate could lead to a continuation of a raft of tax reduction schemes, particularly with the tempting gap between the company and top personal rate remaining.

Overall, though, it is good to see an Australian business leader stepping up to the tax reform plate at a time when there is excess political timidity for any reform.

Hopefully his efforts will help to build some momentum to finally reform Australia’s creaky and inefficient – tax system.