Australia’s tax challenge

Taking a look in five slides

April 2015

The world is changing

2

Much has changed in 40 years.

Our once remote, heavily-protected

economy and the Australian dollar are

now integrated into the dynamic global

economy.

Forty years ago we mostly lived, worked,

produced and purchased locally.

That’s no longer the case.

A big question for every country when it

comes to tax, is where income and

profits can and should be taxed.

Physical business assets are less important

The value of a business

used to be mostly physical

assets (“tangibles”) such as

land, buildings and

machines.

Today, more and more

business value comes from

patents, trademarks,

copyrights, brands and

ideas, which can be located

anywhere in the world.

These are referred to on

company balance sheets as

“intangibles”.

3

17

84

83

16

-

20

40

60

80

100

-

20

40

60

80

100

1975 2015

Per cent

Components of S&P 500 market value

Source: Ocean Tomo . Data for 2015 are at 1 January 2015.

Intangible assets

Tangible assets

-1

0

1

2

3

4

-1

0

1

2

3

4

1980s 1990s 2000 to 2013 2014 to 2025

Net foreign income Labour productivity

Labour utilisation Terms of trade

Per capita income growth

Percentage points contribution, annual average

Projections

End of

mining boom

Due to

mining boom

Increases in

female

participation

Helped by

economic reform

Australia’s economy is changing

Today, Australians produce

twice as much in goods and

services for each hour worked

as they did in the early 1970s.

To protect our future living

standards we must continue to

increase our productivity. This

is about driving investment and

working smarter.

4

Sources of growth in real national income per person

Can we lift

productivity

further?

Source: ABS, Australian National Accounts, and Treasury projections.

Capital is global and mobileCorporate tax rates have

fallen worldwide.

Now, businesses and

investors have more choices

about where to locate their

activities, assets and

investments.

Business and investment

decisions in this global

marketplace can be impacted

by country-based tax rates.

5

Trends in corporate tax rates in selected economies

10

15

20

25

30

35

40

45

10

15

20

25

30

35

40

45

2000 2002 2004 2006 2008 2010 2012 2014

Per cent

Australia Canada United Kingdom Singapore China

Source: OECD, Tax Database – Taxation of Corporate and Capital Income; KPMG, Corporate tax rates table, Hong

Kong Tax Competitiveness Series, Corporate Tax Rate Survey: An international analysis of corporate tax rates from

1993 to 2006.

Australia’s population is changingAustralia’s population will grow and change over the next 40 years. Today there are an

estimated 4.5 people aged 15-64 for every person aged 65 and over. By 2055, this is

projected to nearly halve, with 2.7 Australians of traditional working age to people aged

over 65. This relative decrease in the number of those who pay most personal income

taxes will put pressure on the current tax system to fund services.

6