Rate cut lobbyists under fire

A KEY member of the Henry tax review has rounded on business lobbyists calling for a cut in the company tax rate, saying the government was right not to cut it and it's wrong to say the review wanted it to.

A KEY member of the Henry tax review has rounded on business lobbyists calling for a cut in the company tax rate, saying the government was right not to cut it and it's wrong to say the review wanted it to.

"I advocated a cut in the company tax rate when I signed the Henry report," former Treasury deputy secretary Greg Smith told a Committee for the Economic Development of Australia function in Canberra.

"But that was from our point of view a 10 or a 20-year reform. We certainly didn't see it as an immediate thing. And I certainly also imagined it would only occur in the context of a significant increase in rent taxes.

"We're not going to get that. With tax reform you've got to look at the whole, and once you fail on one front, what's desirable and the timing of what you do on another front has to change. I think the government is right to go slow on company tax."

Mr Smith was particularly scathing of calls by the Business Council and others for even more investment in Australia.

"We already have the highest investment rate in the developed world. The idea that we can increase it in the next five years is ridiculous, completely absurd," he said.

"We can try to restructure it and we should. We do infrastructure in the wrong places, we do the wrong things. But we are not going to get a higher share of GDP, higher than 29 to 30 per cent, without enormous trouble.

"If you tried to go to 35 to 40 per cent all that would happen is that you would see interest rates and other adjustments creating further problems in order to offset the inflationary and other macro-economic problems that such an investment level would bring."

Australia's biggest problem was changing demography, not lack of investment. Life expectancy was advancing by one year every decade and yet the super system encouraged retirement at 60.

"Now, I've been personally associated with creating the superannuation industry in this country," Mr Smith said, referring to his role as an adviser to treasurer Paul Keating in the 1980s. "I don't feel very proud about that. I think it's an achievement, yes, but it's not the answer.

"We cannot have retirement going for 25, 30 years. That's why the Henry review wanted to get the preservation age of super up from 60.

"Super is basically an early retirement system. It is not dealing with the very high costs of aged care and health in late retirement."

The planned increase in compulsory super contributions was set to cost more in tax concessions than it would save by taking retirees off the pension, he said.

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