Productivity Commission recommends tax reform

Treasurer Jim Chalmers has announced the release of the final report of the Productivity Commission’s five-year productivity inquiry — containing a list of 29 reform directives, 71 recommendations spanning nine volumes, and over 1,000 pages. 

The recommendations aimed to bolster Australia’s economic productivity through the provision of an “actionable roadmap” for federal and state governments. 

“Australia’s economy has changed. Almost 90 per cent of Australians now work in service industries, including education, health, hospitality, retail, and finance,” Productivity Commission chair Michael Brennan said.

“It has traditionally been difficult to lift productivity in these sectors. But we are not alone. Economies around the world are grappling with the same issues. 

“There is no easy answer, but we need to address this challenge to secure Australia’s future prosperity.”

Among the recommendations (3.4) is a call to “systematically transition the tax system” through arrangements designed to: 

• promote skilled labour supply;
• improve tax neutrality in respect of savings and investment;
• encourage efficient asset transfers and capital allocation; 
• foster market entry and competition; and
• support efficient risk management by firms and individuals.

Other recommendations (7.1) call for the scrapping of the Business Innovation and Investment visa program, which enables foreigners to own and manage a business in Australia, conduct business and investment activity, or undertake an entrepreneurial activity.

“Temporary migration should be facilitated for people with genuine plans to start a business in Australia, while pathways to permanent residency should involve the revised Skilled Independent visa, based on a points test that better accounts for income levels and age,” the Productivity Commission noted. 

The report also includes recommendations to support climate change adaptation and help achieve Australia’s net-zero target.  

Recommendation 6.2 proposes the provision of information required to enable households and businesses to make “informed adaptation decisions”. 

This could involve state and territory government mandating of pre-sale disclosure of climate risks for all residential and commercial property sales. 

Such disclosure would be based on existing climate change projections across a range of physical risk, including riverine flooding, sea level rise, subsidence, fire, and other natural disasters. 

Moreover, for new greenfield development sites, governments would require the cost of the climate risk reduction measures to be incorporated into the price of buying into the new development.

These could take the form of developer levies, which would “help ensure that future residents face cost-reflective pricing”. 

Reflecting on the recommendations, Treasurer Chalmers said not all Productivity Commission recommendations would be adopted by the Albanese government, but said the government endorses the key themes of the report. 

“The Albanese government takes the productivity challenge seriously which is why we’ve committed to a range of productivity-enhancing investments and reforms,” he said. 

“We will deliver productivity gains by investing in our people and their abilities, from fixing our energy markets, and from making it easier to adapt and adopt technology, so it works for us and not against us.

“We are focused on creating the stability and certainty necessary for capital to flow towards areas where we have advantages and opportunities to underpin a more modern industrial base.”

In an address to the CEDA conference in Brisbane on Friday (17 March), Treasurer Chalmers said the government is working on “two-thirds” of the reform directives proposed in the report and “methodically considering the recommendations”.