The new head of the national lobby representing the views of business says it is open to debating a review of tax breaks that primarily benefit the rich – including superannuation concessions, negative gearing and capital gains tax – if there's an economic case and any changes are delivered as part of a wider reform package.
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In his first major interview since taking over as head of the Business Coalition for Tax Reform, Frank Drenth, whose lobby group includes the nation's biggest business groups, said business was open to a debate about areas viewed by the previous Liberal leadership as taboo.
Members of the Business Coalition for Tax Reform include the Australian Bankers Association, Australian Chamber of Commerce and Industry, Australian Industry Group, Business Council of Australia, Financial Services Council, Minerals Council of Australia and Property Council of Australia.
The comments came as Prime Minister Malcolm Turnbull on Wednesday called Australia's top business, union and community leaders to Canberra for a summit on economic reform.
Mr Turnbull – in contrast to former prime minister Tony Abbott who had ruled out changes to negative gearing and super – has said everything is on the table for tax reform, including GST.
Mr Drenth, who was previously the head of the Corporate Tax Association and a member of the Business Tax Working Group under former Labor treasurer Wayne Swan, said it was time everyone accepted there was a need to debate changes to super, negative gearing and CGT.
However, this had to be considered as part of a wider package of reforms including a GST increase and broadening of the base. Lifting GST had to be done in sync with compensation for low income families and cuts to personal tax and company tax.
Review tax breaks for rich
Mr Drenth said when the Howard government, under former treasurer Peter Costello, introduced changes to superannuation that allowed lump sums to be taken out tax-free, it was done with Labor Party support.
One of the issues highlighted by former Commonwealth Bank boss David Murray under the recent financial system inquiry was allowing people over 60 to take lump sums tax-free.
Mr Murray said current superannuation concessions had primarily benefited the rich and should be up for review in the tax white paper.
Mr Drenth said he agreed, although any retrospective changes were likely to upset wealthy retirees who had made financial decisions based on previous government policies.
"But, nevertheless, there does seem to be some consensus emerging that this ought to be done," he said.
Mr Murray has also been critical of other tax breaks including negative gearing and capital gains tax concession (CGT), which, he says, has distorted borrowing and also primarily benefits the wealthy.
Mr Drenth also agreed with that view.
He said the 50 per cent CGT discount – also introduced under the former Howard government – was an "arbitrary figure".
He said the policy, at the time, was supposed to prevent the unwarranted retention of assets, but it was not clear that had been the outcome.
"It's possible that the discount was overcooked," he said, adding that together with negative gearing, the CGT concession had contributed to the house price boom.
A recent report by the Australian Council of Social Service found more than half of the benefit of "negative gearing" deductions went to the top 10 per cent of personal taxpayers, earning more than $100,000 a year, and stopping Australians claiming losses on investment properties against their wages would save over $1 billion in federal revenue a year.
Have a clear case for change
Mr Drenth said some options for change included that negative gearing could be quarantined, capped, or restricted to new housing, and the rate of the CGT discount could be reduced.
However, the Turnbull government needed to be clear on its reasons, he said, as such major changes could have unintended outcomes.
When then treasurer Paul Keating made changes to negative gearing in 1985, rents in some capital cities rose.
Mr Drenth said there was a chance investors could withdraw from the market and/or raise rents if there were changes to negative gearing of investment property.
"You need to be careful which economic levers you pull, and understand why you are pulling them," he said. "Are you trying to make the tax system more equitable, or are you aiming to improve access to affordable housing?"
Mr Drenth said he hoped the new leadership could sell the case for reform to the public and do so within the boundaries set by Treasurer Scott Morrison that the tax system needed to encourage people to work, save and invest.
