Australia may cut tax to compete with Asia

Australia may cut tax to compete with Asia

CANBERRA (Reuter): Asian competition for investment will force Australia to cut its tax rates over the coming 15 years, a senior minister said yesterday.

Thirty percent of the all income earned in Australia was paid in tax, compared with 22 percent in Malaysia, 18 percent in Thailand and just 11 percent in Indonesia, Industry Minister John Moore said in a speech to an economics think-tank.

"As free trade becomes a reality, as international barriers come down, we will need to carefully monitor the impact of our taxation levels," Moore told the Sydney Institute.

"I am in no doubt that our overall taxation level will need to be reduced over the next 15 years if we are to remain an attractive investment location."

Moore's statement is not reflected in government fiscal policy, which is committed only to eliminating the budget deficit without tax rises in the next two years.

Moore said Australia also had to reduce on-costs, the extras that employers have to pay in addition to wages, and he urged Australia to follow Britain's example.

"The U.K. has a much lower level of statutory non-wage costs than its major European competitors," he said.

"Nevertheless, real yearly take-home pay for production workers in manufacturing in the U.K. is higher than in France or Italy."

So Australia had to cut labor costs without cutting wages, he said.

Australian employers pay such extras as payroll taxes and contributions to their employees retirement savings.

Then the tax rates on the income of both the employee and employer can exceed 48 percent, in addition to miscellaneous state taxes and charges. Sales taxes tend to be low, however. Company tax is 36 percent.

Federal and state governments have been cutting their spending for about 10 years, but most of the proceeds have been used to reduce deficits, not taxes.