With the death of the mining boom the associated revenue windfall it brought is now just a distant memory to many Australians. It’s like they have awoken after a drunken nights party to ask themselves, where has all the money gone?
The need to eventually balance the budget is clear. The challenge is how to change or structure taxes so they actually increase productivity and growth without increasing the overall tax take.
Here are two lessons Switzerland can teach Australia about taxing.
Firstly, the tax rates must be competitive. Governments need to realize all countries are competing at Olympic standards to attract capital, investment, start-up businesses, and the best and brightest human talent. Australia’s 30% company tax rate and individual marginal tax rates as high as 47% are just not competitive. With technology many businesses can be based anywhere. Eighty percent of the world’s coffee is traded through Zug, Switzerland. Why is that? Maybe the average company tax rate of 11% would have something to do with it.
Secondly, the States must levy their own income taxes. In Switzerland the Federal income taxes raise approximately one third of the taxes and the Cantons (similar to Australia’s States or districts) raise the other two thirds of the income taxes. This system provides the States/Cantons with guaranteed tax revenue to pay for their services. An added benefit is the competition created by different States/Cantons having different taxing rates. Zug for example, has tax rates of only half of Zurich. This has resulted in Zug transforming itself from a poor farming town 50 years ago to one of the most advanced and wealthy places in the world.
Making these two tax changes would transform Australia and increase the country’s productivity and standard of living. Zug is a fine example of what is possible and the benefits to be reaped from making those changes.