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MIL OSI – Source: KPMG – KPMG responds to release of Tax Discussion paper We welcome the paper‘s clear conclusion that company tax is too high and bracket creep a real issue. It is too often unappreciated that bracket creep is inherently regressive – it is not a problem just for middle to high earners. Similarly, we are glad to see the paper acknowledge that high company tax rates damage the interests of workers in the long run – there is considerable evidence to suggest that in a medium-sized open economy like Australia’s, a lower corporate tax rate would actually help workers by generating increased capital intensity, greater technology transfer, and R&D per employee. This  would lead to greater productivity and hence higher wages. The government’s decision to require unanimous support of states and territories for changes on GST effectively consigns that to the medium future – but as the paper says, GST is an efficient tax and we look forward to the time, which must come, when the federal government does not feel so constrained. The paper notes the growing importance of spending on items not subject to the GST such as goods below $1000 and services sold online.  This is a difficult issue and the Government is looking for solutions that do not carry a substantial compliance burden. On negative gearing, which so many people point to, once again the paper has taken a measured approach and pointed out that the problem lies in the CGT discount, not the interest deduction. It would seem unlikely the Government will seek to deny the ability to offset excess interest expenses related to rental income against salary income. The paper recognises the huge complexity for small business, in part created by concessions and different legal structures.  We welcome moves to reduce administrative burdens on this sector. On a related matter, the Bank Deposit Levy, the Tax Discussion Paper correctly points out that bank accounts are already the highest taxed form of savings. The distortionary effects of the taxation of bank accounts was discussed in the Murray Report and it concluded that a more consistent basis of taxation of all savings would likely increase productivity. KPMG believes that any increased taxation burden on bank accounts in an environment where the ongoing consultation is canvassing a reduction would be premature and prejudge the tax discussion that today’s paper is intended to create. –  ]]>