Has Commonwealth Bank gone left on tax reform?

Australia’s largest financial institution Commonwealth Bank has thrown down the gauntlet down before Labor Treasurer Jim Chalmers in its latest submission to the Productivity Commission’s inquiry into creating a more dynamic and resilient economy.

CBA, under the leadership of chief executive Matt Comyn, is advocating for drastic measures to reignite a flame under Australian productivity.

The submission was surprisingly left-leaning in some ways, in that CBA, as the titan of Australian commerce it is, is not advocating for lower corporation taxes.

“We do not believe that lowering the company tax rate should be a priority, provided there is no change to Australia’s imputation credit regime. While we, and no doubt other large companies, would welcome a lower company tax rate, we believe there are other priorities which should lead the productivity reform agenda,” said CBA.

So what does CBA want?

The submission identifies three urgent priorities:

• housing affordability

• tax and fiscal settings

• energy security

On housing, CBA is blunt about the lack of urgency in policy circles. “Safe and secure housing for all Australians should be a priority and owning or not owning a home should not become entrenched as a societal fault line.”

CBA pointed to a multi-decade decline in productivity in the housing construction industry, calling for “smart, streamlined, forward-facing regulation” to reverse the trend.

The bank believes Australia needs to “find a way to lower its dependence” on income taxes. Rather, CBA is pushing for a debate on wealth and consumption taxes, political risks be damned.

“We now need to catalyse the next wave of tax reform debate, which should include the appropriate levels and role for consumption and wealth taxes, for distributional fairness, and for incentivising productive activity in the economy,” the submission read.

As for energy security, CBA linked the transition to clean energy directly to Australia’s future competitiveness, especially in an AI-driven global economy.

“Abundant, affordable and reliable clean energy will be crucial to the success of future industries such as AI. Strategic investments today will create greater economic opportunities for future generations, while also supporting our sovereign capability.”

The hard road

CBA didn’t shy away from the complexity of the challenges Australia faces.

“Enduring productivity reform will be hard won, but it is possible. We have done it before as a nation, and we can do it again.

“It will take government, business and communities working together in the national interest to lift quality of life and deliver prosperity for all Australians. This is a generational opportunity for us all, if we are willing to seize it.”

In what could prove the least popular of CBA’s litany of policy suggestions – given the furore around SMSF tax increases – the bank suggested that uncapped super concessions “appear to be unsustainable”.

The bank said: “We would support a superannuation cap, set at a level that encourages aspiration, and set well above the level where there is dependence on the state for support in retirement.”

In CBA’s view, the productivity conundrum is existential.

Although labour productivity hit a record high at the start of the pandemic in early 2020, thi was driven by a temporary shift away from low-productivity sectors affected by lockdowns. 

This spike was short-lived – by mid 2023, productivity had dropped more than 6%, returning to pre-pandemic levels. Multifactor productivity barely moved, rising just 0.1% between 2022-23 and 2023-24. That’s not only below the already sluggish 20-year average of 0.3% a year, but a far cry from the 1.6% annual growth seen between 1994-95 and 2003-04.

“The future success of our economy will depend on how fast we reverse this trend. The longer we delay reform, the harder it will be to catch up,” said CBA.

Despite the anxieties around productivity, CBA struck an optimistic tone about the lucky country’s prospects.

“Australia has many advantages. We are a high-functioning multicultural democracy with a vast land mass geographically proximate to much of the world’s growth. We have enviable natural resources.

“There are few countries with better intrinsic potential than Australia. Targeted interventions to encourage greater investment could be considered, potentially funded by reducing concessions which apply to non-productive parts of the economy.”