CHECK AGAINST DELIVERY

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1 CHECK AGAINST DELIVERY AmCham-iiNet Business Luncheon Thursday, 26 November 2015 Adelaide Convention Centre, North Terrace, Adelaide Honourable Jay Weatherill MP Premier of South Australia Acknowledgements Councillor Houssam Abiad, Deputy Lord Mayor of Adelaide His Worship Mr Gary Johanson, Mayor of Port Adelaide Enfield Ms Robyn Houghton (HOR-ton), Executive Director of the American Chamber of Commerce in Australia Members of the Chamber and the wider business community Ms Leigh McClusky, today s Q&A facilitator Ladies and gentlemen

2 Remarks Introduction I begin by acknowledging that this land we meet on today is the traditional land of the Kaurna people. Good afternoon. It s a pleasure once again to attend an American Chamber of Commerce event and to discuss the economic future with audience members. Before taking part in the Q&A session, I d like to do two things today. First, I ll provide an overview of the state of the local economy and the challenges likely to arise for us in the years ahead. And, second, I ll detail a new plan for national taxation reform a proposal designed to end the current stalemate, and to provide governments with the revenue they need to fund the services Australians expect. 2

3 My ultimate purpose is to foster debate about the single most important topic in 2015 the thing we re all striving for and that is the creation of more and better jobs. Where we are now As you might have seen, my Government yesterday released its annual Economic Statement and a report summarising the results achieved in the first year of its Economic Plan. That Plan which I launched in August 2014 was devised in response to events that were occurring at the time and were creating great uncertainty. I speak here, in particular, about the concern that followed the announcements that Holden and other automotive manufacturers would soon end local production. Since then, the pace of change and the scale of the challenges have if anything only increased. We ve seen, for example, a dramatic fall in global commodity prices. 3

4 This has limited our short-term ambitions for growth in the resources sector which is and will continue to be a mainstay of our State s economy. Other economic indicators show what a difficult and volatile period the past year has been: unemployment remained stubbornly high and was at 7.5 per cent in South Australia in October; the value of Australia s currency fell by 23 per cent against the US dollar; the price of Brent crude oil is down 58 per cent; copper and iron ore prices fell by 33 per cent and 44 per cent respectively; and the increase in global economic growth has been modest. In this environment, few economies are able to truly flourish or expand significantly. 4

5 However challenging and unpredictable the times might be, South Australia has no real choice but to keep pushing forward with optimism and boldness. We must continue our transformation from an old to a new economy one that is open, innovative and knowledge based. We must impart to our young people, through the education system, the skills and traits required to do jobs that are more sophisticated and in some cases haven t even been invented yet. We must maintain an investment environment in which businesses feel confident enough to make long-term commitments and pursue new opportunities. And we must focus on the sectors in which we have a competitive edge, that are poised for long-term growth and that are linked to global industries. Overall, I think that although there s room for improvement, the past year has had many highlights and brought about measurable success. 5

6 For example, we re building on our environmental leadership by seeking to meet the energy needs of the State Government through low-carbon solutions an approach I ll be promoting next week as part of the Paris Climate Change summit. In other areas, we re seeing the creation of hundreds of new jobs in the food industry, and through the attraction to Adelaide of major players in the IT sector such as Hewlett Packard Enterprise. In the field of tax reform, the historic measures that were the centrepiece of the June State Budget removed a series of barriers to economic growth. We fixed the WorkCover system to significantly reduce costs for business. And we re reforming the planning system to make development simpler and accelerating the rate of approvals for major projects through the office of the Coordinator-General. The First-Year Review of the Economic Priorities shows that progress so far has been sound. 6

7 Of the 68 objectives set down for 2015: 25 have been achieved; 24 are on track to be achieved; 17 have seen progress made; and two have not been achieved. People are welcome to visit and download the two major documents and see for themselves how the State is tracking. My key point about the priorities is that they belong to everyone, not solely to the Government. So I invite all South Australians to work with us to meet those objectives. As for 2016, the events of the past year have made me and the State Government only more determined to be bold and to explore new opportunities. 7

8 SA s tax-reform credentials I d like to now move to the second part of my address. I ve chosen this AmCham luncheon as the forum for the release of a South Australian Government proposal for the reform of the national taxation system. We ve done quite a bit of work on tax in And rather than that being merely a technical exercise we ve sought to make tax just one part of a wider program of reform of Federal-State relations. Incidentally, and to that end, I tomorrow will be announcing a plan to reform Federal-State arrangements that is directed towards creating a new system of early childhood education for our nation. My Government undertook a root-and-branch review of our State taxation system early this year. That review and the subsequent reforms we instituted was premised on two complementary principles. 8

9 The first was that South Australia needed a system that was free of inefficiencies, rewarded effort and encouraged economic activity. And the second principle was that any changes should promote equity that the tax burden should not fall on those who can least afford it. Now is not the time to revisit every detail of that State reform package. But what I will say is that business-transaction taxes are being removed and a total of $670 million in tax reductions will be provided over the next four years. The upshot of the whole process is that once all measures are implemented South Australia will go from being the highest to the lowest taxing State in the nation, while at the same time protecting our most vulnerable citizens. That s no mean feat. 9

10 At a speech in Sydney in September, I put forward a detailed proposal for the taxation of financial services and asked for this to be considered by the Prime Minister, Premiers and Chief Ministers. All this policymaking activity demonstrates that South Australia is serious about reforming tax for the long-term future and for the national good. Stalemate Over the course of this year, I believe a consensus has formed that Australian governments need to provide a clearer vision for our country about the jobs of the future and the security of basic services. The imperative for this is particularly acute when it comes to meeting our continuing health care needs. Of all the areas in which government spends money, health is the one that will demand the most attention and careful management in the years ahead. Indeed, it s threatening to crowd out consideration of all other issues. 10

11 It s not only that we can t fund health we can t even think beyond health. The increasing cost of health and hospital services is more than any of the States and Territories can handle under the current tax and grant revenue regime. They are facing a growing fiscal gap as identified by New South Wales Premier Mike Baird of up to $45 billion by Most of this gap is caused by projected increases in health care needs, and it has been exacerbated by recent Federal cuts to health funding. Australian health care expenditure is modest by international standards. Hence, the capacity for further drastic cost reductions is limited. This necessarily requires us to consider other revenue measures. 11

12 But we seem to have reached an impasse. Some States are willing to consider an increase in the rate of the GST. Others oppose this, but are prepared to look at broadening the GST base and a rise in the Medicare levy. Meanwhile, the Commonwealth is concerned about the impact of levies and taxes that are inefficient or reduce incentives to work. And it has indicated that irrespective of what reforms might occur it doesn t want to increase the overall tax take. A new way forward What I m proposing today and I plan to take this in more detailed form to the COAG meeting scheduled for 11 December is a fundamental change in Federal-State relations. 12

13 This would involve the States receiving a fixed share indicatively 17.5 per cent of the revenue derived from personal income tax. The Commonwealth would retain the ability to set income tax rates. This tax was once levied by the States, but was transferred to the Commonwealth during World War II. The counterpoint to this measure would be for the States to permit an increase in the rate of the GST from 10 per cent to 15 per cent. The Commonwealth could take all of the revenue raised by that 5 percentage point increase and not give it back to the States unlike what it does now with the first 10 per cent. Instead, the Commonwealth could use those funds at its discretion after compensating low-income earners affected by the GST rise. 13

14 In return for the States agreeing to share the GST base, the States would be given access to a growing revenue base so that they can better meet their future fiscal needs. All non-gst Commonwealth grants to the States excluding infrastructure payments and on-passed grants would be converted to a share of the income tax base. And the sharing arrangements of both the GST and personal income tax would be legislated. This is a superior solution to the States long-term health care needs than the proposed increase in the GST to 15 per cent. This is because the GST is not a growth tax, and even with a 15 per cent rate it will eventually be inadequate to meet our health care needs. In simple terms, a 15 per cent GST collects too much in the short term and not enough in the long term. 14

15 The tax reform proposal I ve just outlined has many advantages: it provides the States with access to a more reliable source of funds to meet the rising demands of the health system; it gives the Commonwealth the freedom it s seeking to provide near-term tax relief; it means an end to debate about expanding the GST base to health and education a topic that would otherwise make national agreement difficult to reach; it gives the Commonwealth more skin in the game when it comes to the management of the GST; it improves efficiency by removing the layers of bureaucracy involved in current funding agreements and reporting requirements; and most important of all, it amounts to genuine Federation reform giving the States more fiscal autonomy to pursue productivity growth through policy innovation. 15

16 Much of the productivity gains identified for the nation are in areas of State responsibility, and one needs only to consider the topics dealt with by the Harper Review as evidence of this. This new freedom for the States could unlock a bold new era of innovation and productivity growth for our nation. Conclusion Ladies and gentlemen. I ve put this tax measure forward today because as I ve been on all aspects of Federation reform I want to be constructive and I want to end the logjam. The need for tax reform is urgent and staring us in the face. If current arrangements continue, governments across the country simply will not draw in sufficient revenue to fund the services they re expected to provide, which will paralyse productivity reform. 16

17 In these circumstances, the elected leaders of this nation can do one of two things. They can avoid political flak, protect existing arrangements by resisting change and, so, sit back paralysed as the situation reaches crisis point. Or they can move away from entrenched positions, consider the long-term national outlook and work towards a practical solution. As Malcolm Turnbull said on the day he became Prime Minister in September, we need a new style of leadership one that respects people s intelligence, explains complex issues, sets out a course of action and argues the case for it. For some people, the topic of tax reform might seem dry and academic. But, in fact, remodelling our tax system is vital if we re to foster an economy that is modern and adaptable, and that encourages investment in our people, the industries of the future and our cities. 17

18 As I said at the start, the tax system and the strategy the South Australian Government is pursuing through its Economic Plan must ultimately address the same imperative. And that imperative is the creation of more and better jobs and services so that individuals and families can thrive. I ve greatly appreciated the chance, this lunchtime, to survey the economic challenges facing both our State and nation. I thank the American Chamber of Commerce and iinet for holding this enjoyable and worthwhile event. And I look forward to fielding your questions. Thank you. 18