Productivity Commission calls for company tax rate to be slashed to 20pc, create a 5pc net cashflow tax
It comes after Treasurer Jim Chalmers confirmed the intensive talks would take place between August 18 to August 21 and look at ways of improve Australia's tax system.
One of the key recommendations made by the PC's interim report released on Thursday was for the company tax rate to be dropped to 20 per cent for the majority of businesses with an annual turnover below $1bn, while companies with a turnover above $1bn would remain at 30 per cent.
The budget neutral move has been modelled to increase Australia's GDP by $14bn.
Currently Australia has a two-tier system where business with a turnover of less than $50m are hit with a 25 per cent tax rate, while companies above that threshold are taxed at 30 per cent.
The cut to the company tax rate would be combined with a new 5 per cent net cashflow tax, which would target a business' profits instead of its total income, and effectively allows businesses to immediately deduct the full value of their investments.
This in turn boosts capital expenditure and is tipped to increase investment in the economy by $8bn.
PC deputy chair Alex Robson said the changes would support investment and productivity growth, warning that changes were needed urgently to ensure quality of life doesn't go backwards.
'If we don't get our economy moving again, today's children could be the first generation to not be better off than their parents,' he said.
'We need to spark growth through investment and competition – the best way to do that is to reform our company tax system.'
Jim Chalmers welcomed the report and said it would be 'important input' for the roundtable in August.
'This whole process is about building consensus to build a better future for Australians,' stating the government was 'ambitious to do more where we can'.
The Treasurer also noted the PC's three recommendations to 'prompt business dynamism,' which included setting a 'clear agenda' to slash red tape, and implement formal expectations for bureaucrats to deliver growth, competition and innovation through regulatory systems.
It also called for more oversight to scrutinise new regulations, including creating an independent statutory commissioner and expanding the remit of the Commonwealth parliamentary scrutiny committees.
'Reducing regulatory burden is an important part of our productivity effort and we're working with regulators on potential reforms to be considered as part of the roundtable process,' Mr Chalmers said.
'We recognise that the best way to strengthen our economy and make it more productive is to work through these issues in a methodical and considered way in collaboration with business, unions and the broader community.'
The PC's recommendations comes as Labor has released the three-day agenda of its Economic Roundtable which features sessions on combating international risks, boosting business investment and cutting red tap.
A specific section will also be dedicated to AI and innovation, while the third day will focus on budget sustainability and tax reform.
Attendees will include Shadow treasurer Ted O'Brien, Wentworth MP Allegra Spender, former Treasury secretary and Australian Climate and Biodiversity Foundation chair Ken Henry and current secretary Kenny Wilkinson.
The ACTU's top brass including secretary Sally McManus and president Michele O'Neil, and business group leaders including Business Council of Australia boss Bran Black and Australian Industry Group head Innes Willox will also attend.
Mr Chalmers said he hoped the 'targeted agenda' would give the group the 'best possible chance of building consensus on the direction of economic reform'.
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Sam Hawley: On average, there's a class action launched in Australia every week. But do they really help bring justice to groups of Australians exposed to wrongdoing? Today, Anne Connolly on her Four Corners investigation into the class action traps leaving victims short-changed and lawyers richer. I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily. Sam Hawley: Anne, in Australia, class actions have become pretty common, haven't they? It's a really important way to address injustices in this country. Anne Connolly: Well, yes, that's what class actions are designed to do. And I mean, when there were some really major catastrophes, such as the Victorian bushfires, the Queensland floods, class actions were taken to get some money back for those people. News report: Property owners around Horsham in Victoria have banded together to bring the first class action arising from the Black Saturday bushfires. Anne Connolly: Same with the pelvic mesh issue against Johnson & Johnson. News report: The federal court found Johnson & Johnson had been negligent and driven by commercial interest and ordered them to pay compensation. Anne Connolly: There's many, and they're very varied. Sam Hawley: Yeah, and you found during your Four Corners investigation, this is a billion dollar industry, but it's not always in favour of the individual victims. So to explain this further, why don't we look at a recent case, Anne, a legal fight between more than 8,000 Australian taxi drivers and Uber. Anne Connolly: Well, I mean, I think most people remember when Uber entered the market, obviously the taxi industry was absolutely decimated. They just couldn't compete any longer. One of the taxi owners I spoke to is a man called Stephen Lacaze. He said he had a licence in Queensland, which was at the time valued at about half a million dollars. It went to being virtually worthless once Uber came along. Stephen Lacaze, taxi owner: Oh, it was devastating. People virtually went into shock. Anne Connolly: So when Maurice Blackburn, which is one of the biggest class action firms in Australia, came along and proposed a class action, he was very keen to sign up. Stephen Lacaze, taxi owner: We were friendless. And here comes Maurice Blackburn with their Bradman-like batting averages, and their 'we fight for fair' banner, and we're there with bells on. Sam Hawley: OK, so Stephen was keen to fight this. Maurice Blackburn lawyers take it on, and they get a third party, a litigation funder, to pay the costs. Just explain how that works. Anne Connolly: Yeah, so what happens is Maurice Blackburn doesn't want to go this alone. So what they do is they engage somebody called a litigation funder. And litigation funders, they pay the lawyers' fees, they support them, and if they lose, they pay all of the costs, so there is some risk. But in return for taking that risk, they want a percentage of any payout that they win. So in this case, with Maurice Blackburn, they had a partnership with an offshore firm called Harbour Litigation Funding, which is actually registered in the Cayman Islands. It's a tax haven, and there's quite a few litigation funders in tax havens. Under this deal, they said, we want 30% of the proceeds. And Stephen signed up for that, as did most of the taxi drivers. Stephen said he did that because he thought they were going to get a payout worth billions because that's how much they'd lost. Sam Hawley: So in this case, Maurice Blackburn, the law firm, ends up settling this class action. So just tell me what happens then. Are the taxi drivers elated about this? Anne Connolly: Well, the night before the trial was due to start in March last year, Maurice Blackburn brokered a deal with Uber. That would be that Uber would pay $272 million in compensation. Now, once Harbour took its commission, that came out at $81.5 million. Maurice Blackburn took its legal costs, which came to $39 million. It means that the drivers were left with just over half the payout. Now, we don't know what individual taxi drivers will get. Stephen Lacaze believes he'll get about $20,000 once all of these fees and commissions come out of his payment, which he says is nowhere near what he lost. Sam Hawley: What did Maurice Blackburn have to say about that? Anne Connolly: They said the federal court had approved the settlement as fair and reasonable, and Harbour, the funder, said that the case was long-running and there were significant risks. Sam Hawley: Hmm, OK. So, Anne, that's the case of the taxi drivers against Uber, and we're going to talk about another really concerning case in a moment. But before we do, let's just look at the system more deeply. The worry here is that the whole class action system is set up to make profits for the law firms and the funders, but not deliver the justice to the victims, right? Anne Connolly: Well, there's some people who are concerned about that. I mean, the lawyers and the funders will say, without us, people would get nothing. The problem is that what's happening now is most people think a class action begins with a group of victims, but that's not really the case anymore. Now everything has changed because litigation funders have now entered the Australian market. So what happens is, it's the law firms and the litigation funders getting together and seeing, what are these issues that we could launch a class action on so that they can make money and then they can sign up the group members? So the concern is, are they really seeking justice for people or are they actually just finding a business opportunity so that they can make as much profit as they possibly can? Sam Hawley: Anne, let's now look at another case where the victims are left with, in comparison, petty change. Just tell me about Minnie McDonald. Anne Connolly: So Minnie McDonald is a woman in her 90s. She lives in Alice Springs and she was approached by Shine lawyers to become what's called the lead plaintiff in a class action in the Northern Territory for stolen wages of Indigenous workers who worked on cattle stations and missions for little or no money. Minnie McDonald, lead plaintiff: No shoes, get up in the morning, go to work. Come back afternoon, cold. Anne Connolly: So this case relates to the treatment of people like Minnie who, along with a lot of other... ..thousands of other Aboriginal men, women and children worked for little or no pay between the 1930s and the 1970s. Look, I just think, you know, one of the things I want to say about this is if ever there was a class action needed, perhaps it was in this particular case. I mean, there's questions about why the governments didn't just actually pay people what they deserved instead of being forced to court and forced to pay out compensation. But in any case, what Shine says and what the litigation funder says is we were doing our very best to get right a particular historical injustice. Sam Hawley: So the law firm Shine takes on this class action along with the litigation funder, Litigation Lending Services, and Minnie becomes the lead plaintiff. But the thing is, Anne, we know with legal cases, there's a lot of paperwork and Minnie had to sign a lot of that and she can't read or write. Anne Connolly: That's right, she can't read or write. So Minnie had her granddaughter Elizabeth to help her. However, Elizabeth does say, you know, it was complicated. It was difficult to understand at times. So Minnie did sign one document which said that Shine's costs had increased by $10 million and she signed off on that. I asked her about it and I asked her granddaughter if they remembered it. They didn't. I asked Shine, did they check that Minnie had the capacity to understand the complex legal and financial issues around class actions? They said being unable to read or write is no indication of intelligence and that they had an Indigenous barrister who helped to cross these cultural barriers and explain the process to them. Sam Hawley: So tell me what ended up happening with the case. Anne Connolly: So there were two class actions in WA and the NT and they both settled. So they didn't go to court. In Western Australia, there was a settlement for $180 million. In the Northern Territory, it was $200 million. Which sounds, you know, really positive. But what has to come out of that are the legal costs and the commission for the litigation funder. So they're not going to end up with that much. They'll end up with at least $10,000 and some will end up with more than that. Minnie McDonald, lead plaintiff: So somebody might... get a car and just take me for a picnic somewhere, you know, have a feed. But... I didn't get enough. Anne Connolly: You didn't get enough to buy a car? Minnie McDonald, lead plaintiff: Yeah, yeah. Nothing. Not enough. Anne Connolly: On the other hand, what's happened is Shine Lawyers is going to get about $30 million for its work. And the funder, Litigation Lending Services, they will take a commission of about $57 million. Sam Hawley: And you've had a really good look, haven't you, also, at the amount the law firm Shine was actually charging. Anne Connolly: Well, that's very interesting because Shine was roundly criticised in both WA and Northern Territory courts by the judges there. In one instance, Shine was charging for law clerks, charging them out at $375 an hour, even though many of them were unqualified uni students. They hired at least a dozen barristers that cost almost $3.5 million. One of those barristers charges almost $5,000 an hour. So, you know, the legal costs are the things that's really interesting. Sam Hawley: All right. So, Anne, the law firms and the funds are making a lot of money from these class actions in many cases. They do argue, as you mentioned, that they're actually giving people a chance to have these cases heard. What has Shine told you? Anne Connolly: Well, Shine said we were the only ones who were willing to take this on. We have given Aboriginal workers a chance to tell their stories. They've received compensation and they're being acknowledged for the historical injustices that they've suffered. And they said that these cases require experienced and well-resourced lawyers. And Litigation Lending Services, they said that they're proud of their involvement and that their commission was lower than the standard market rates because they wanted to reflect the social justice nature of these claims. Sam Hawley: And you spoke to the head of the Association of Litigation Funders. So this is a group that represents the firms that financially back these class actions, the funds. Its head is John Walker. So what's he had to say? Anne Connolly: Well, he said, look, you know, this is a market. This is a financial market that they operate in. They're trying to get some justice for people, but at the same time they're trying to make a profit and they don't shy away from that. John Walker, Association of Litigation Funders : We underwrite the project. We'll pay everybody if we lose, but in return, if we win, then we get a share of the recovery. We don't see it as gambling. We see it as investing. It's a market, and I don't step away from that. Anne Connolly: He essentially says, look, what we're doing is we're trying to correct the bad behaviour. Even if these class members are not getting enormous sums, it's sending a message to the big end of town that you can't operate in this way any longer. John Walker, Association of Litigation Funders : I'm absolutely proud of what's happened with class actions in Australia. They're absolutely essential to create accountability in respect of the big companies and governments. Sam Hawley: But, Anne, it does sound like a system that's not really working as it should. That is for the everyday people who need it. Anne Connolly: Well, I think what happens is a lot of people look at a class action sum and they believe that the sum that's been publicised is what people are getting. They don't realise that up to half of it can disappear in fees and commissions. The other point being the only class actions that actually get funded and get run are those that turn a profit. So when you're talking about others that might be very worthy, they won't get up if the bottom line doesn't look good. I think the problem arises when you're talking about people who have really suffered, such as these Aboriginal workers in the stolen wages cases who thought that they were going to get some proper compensation and what they're getting is simply a fraction of what they really deserve. And when they do see litigation funders and lawyers walking away with tens of millions of dollars, it makes it difficult for them to understand and sometimes it can feel like they've been exploited all over again. Sam Hawley: Anne Connolly is an investigative reporter with the ABC. You can see her Four Corners report on ABC TV tonight at 8.30pm or you can catch it on iView. This episode was produced by Sydney Pead. Audio production by Sam Dunn. Our supervising producer is David Coady. I'm Sam Hawley. Thanks for listening.
