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Key points:
- The government recently hosted an Economic Reform Roundtable, with the aim of developing policies and reforms to improve the productivity, resilience and sustainability of Australia’s economy and budget finances.
- Priority reforms aim to reduce red tape and boost productivity, especially in residential construction by streamlining approvals and regulations.
- Important medium-term initiatives include reviewing the tax system, with potential changes to family trusts, capital gains tax discount and the company tax rate for smaller businesses.
- There have also been important interest rate developments since our last update with the RBA cutting the official cash rate again in August, and the US Federal Reserve likely to follow in September.
Economic Reform Roundtable: Aiming for a More Productive and Resilient Economy
Australia’s decade-long productivity stagnation (see chart) prompted the government to host an Economic Reform Roundtable from August 19-21. While lifting productivity was the core focus, discussions also considered how to make the economy more resilient and address taxation reform over the medium term. With digitisation, an ageing population, and emerging technologies like AI reshaping the business landscape, Australia’s tax system and budget settings need to evolve accordingly. Examples include introducing road user charges for electric vehicles (currently road construction funding is levied by a fuel excise) and finding ways to fairly tax global digital companies that sell in Australian without a local presence.
Immediate Focus Areas Aim to Reduce Red Tape, Especially in Residential Construction
At the Roundtable’s conclusion, the Treasurer announced a list of ten priority reform areas that could be addressed relatively quickly (see Treasurer’s Press Release). These include streamlining housing and environment approvals, reducing duplication in government reporting, modernising regulation, and developing a comprehensive AI strategy. Many of these initiatives could help reduce red tape and speed up approvals, and thus make useful contributions to productivity, especially in residential construction.
Medium-Term Focus on Tax Reform
A major outcome of the Roundtable was the broad agreement that tax reform was required over the medium term. While major tax reform has largely been politically difficult in recent years, and there is important further work to be done in the medium-term to harmonise the Federation, the Treasurer set out three clear objectives:
- To provide a fair go for working-age people and to consider tax from an intergenerational perspective.
- To produce a responsible way to increase business investment (and in so doing boost productivity).
- To make the tax system simpler and more sustainable in the context of large changes occurring in the community, including the ageing of the population.
For business owners, the intergenerational fairness aspect suggests possible changes to family trusts, capital gains tax discounts and concessional superannuation arrangements may be forthcoming. The Treasury has been tasked with exploring these reforms further. Interestingly, the Productivity Commission floated the idea of a cut in the company tax rate to 20% for companies with under $1 billion in turnover, funded by a 5% cash-flow tax for all businesses. While still under consideration, these ideas signal a shift toward a more dynamic and forward-looking tax framework that could reshape how Australian businesses plan and invest.
Important interest rate developments, especially in the US
The RBA cut the official cash rate by a further 25 basis points to 3.6% in August, a move widely expected following the July Board meeting “no cut” surprise, where the Board signalled it was waiting for further confirmation of lower inflation, which duly arrived with the Q2 CPI. The RBA’s August forecasts suggest continued relatively slow economic growth and a steady 4.3% unemployment rate, with two more rate cuts likely in November and February - unless the unemployment rate moves above 4.3% before that time.
In the US, the Federal Open Market Committee (FOMC) is expected to cut interest rates in September, which would mark the first US rate cut since December 2024. While the majority of the FOMC had been holding out against severe pressure from President Trump to cut interest rates immediately, its focus on containing inflation from tariffs had been supported by a strong labour market. However, weaker employment growth in July and significant downward revisions to prior employment growth estimates in May and June saw Fed Chair Powell signal that risks in the labour market may be shifting, paving the way for a September US rate cut. This may be important for Australian businesses because while RBA interest rate cuts determine floating rate interest rates such as overdrafts and mortgages, US rate decisions can influence longer-dated interest rates such as five-year fixed rates. US and Australian longer-dated borrowing rates have moved a little lower already as a result.
What it means for my business…
The Roundtable outcomes suggest a policy shift aimed at lifting productivity and improving the resilience of the Australian economy. In the short term, efforts to reduce red tape - particularly in areas like housing approvals and regulatory reporting, may help lower costs and speed up project timelines, especially in construction and development. For businesses more broadly, these changes could ease some of the administrative burden and improve the pace of doing business.
Over the medium term, tax reform is likely to be a key area to watch. While no immediate changes have been announced, the government is considering adjustments to areas such as company tax rates, capital gains tax concessions, and superannuation settings. These could have implications for how businesses structure investment, manage succession planning, and assess long-term financial strategies.
Interest rate developments also remain relevant. While the RBA’s recent cut may ease pressure on variable-rate borrowing, movements in US interest rates are influencing longer-term fixed borrowing costs. Businesses with exposure to fixed-rate debt or capital investment plans should monitor these trends closely. As always, these developments highlight the importance of maintaining financial flexibility, reviewing investment plans regularly, and staying informed about policy changes that may affect your operating environment.
