Rethink on business tax plan after lobbyist backlash
Big companies will get income tax cuts but will still have to pay more under a revised plan following an outcry from the business lobby.
The government’s economic think tank, the Productivity Commission, published five final reports of its inquiry into Australia’s stalled productivity growth on Friday.
The main change in the commission’s draft reports, released ahead of Chancellor Jim Chalmers’ economic reform roundtable in August, was to cut the income tax rate for large firms from 30 per cent to 28 per cent as part of controversial proposals.
Along with reducing income tax for small firms from 25 percent to 20 percent, a five percent net cash flow tax will allow businesses to immediately reduce capital expenditure and encourage companies to invest more in equipment.
But lobby groups representing large and small employers, including the Business Council of Australia and the Council of Small Business Organizations of Australia, unanimously criticized the commission’s initial proposal.
Originally the Productivity Commission recommended keeping the large business tax rate at 30 per cent; This meant that companies with turnover of more than $1 billion would face an effective tax rate of 35 percent.
Business Council chief executive Bran Black said in a presentation that raising the high business tax rate and adding complexity to the tax system would harm investment, reduce GDP and ultimately increase costs for Australian consumers.
The Productivity Commission said its amended proposal to cut the income tax rate to 28 percent would increase GDP by $13 billion, or 0.7 percent, and raise labor productivity by 0.5 percent, but would not worsen the budget’s profitability.
“Having further modeled and developed this proposal since our interim report, we are confident that this is the best revenue-neutral option to improve investment,” commission deputy chairman Alex Robson said.
“We also modeled and explored alternative corporate tax reforms that would increase investment but would cost the budget if not paired with other revenue measures.”
Compared to the first proposal, fewer companies would pay more taxes than they do now.
The new proposal envisions the effective tax rate for the largest firms varying between 26.7 and 31.6 percent, depending on their investment activities.
Companies with a turnover of between $50 million and $1 billion, which currently face a tax rate of 30 percent, will see the biggest benefit with effective combined tax rates reduced to 19 to 24 percent.
The report also called on the federal government to make regulatory reform a key priority.
Recommendations in the commission’s four other reports include improving teaching resources to boost skills, encouraging the adoption of artificial intelligence, introducing a national emissions reduction policy and investing more in prevention to reduce spending in the care economy.
Danielle Wood, chair of the Productivity Commission, said the country’s productivity growth had stalled since 2016 and action was needed to “ensure future generations can live better and more prosperous lives than those who came before them”.
“Our latest suite of recommendations, if fully implemented, will add billions of dollars to the economy, benefiting workers, households and businesses today and in the future,” he said.
The treasurer said the government would take time to properly consider the reports ahead of the next budget.
“We may not be able to achieve everything, but we will take it all and see what we can improve on,” Dr Chalmers said.
Australia’s Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.
