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 Components of S&P 500 market value Source: Ocean Tomo. Data for 2015 are at 1 January Intangible assets Tangible assets

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 mobile Corporate 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 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 changing Australia’s population will grow and change over the next 40 years. Today there are an estimated 4.5 people aged 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