Productivity Commission backs biggest Australian company tax rate cut in 40 years
The plan would deliver the biggest reduction in the company income tax rate in nearly 40 years and dramatically shift Australia from having one of the highest to one of the lowest rates in the world.
The PC on Thursday night released its interim report on how to create a more dynamic and resilient economy, the first of five separate inquiries commissioned by Jim Chalmers late last year.
Alex Robson, the PC's deputy chair, said the tax proposal was 'ambitious but sensible'.
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'We need to spark growth through investment and competition – the best way to do that is to reform our company tax system,' he said.
Robson argued that Australia's high headline company tax rate versus its peers was a barrier to foreign investment and there was evidence that it was driving local entrepreneurs to set up business in lower-taxing countries.
He argued that lowering the tax rate for the more dynamic smaller and medium-sized business sector would provide the biggest 'bang for buck' when it came to driving local investment.
The PC also recommended the government do more to reduce the 'ever-growing thicket of rules and regulations', which was acting as a handbrake on growth by making it more difficult to, for example, supply homes, build green energy infrastructure and start a business.
'Better regulation and approvals' will be a major area of discussion on day two of Chalmers' three-day economic reform roundtable to be held in three weeks' time.
Chalmers, in a statement accompanying the release of the PC's interim report, said 'reducing regulatory burden is an important part of our productivity effort' but made no mention of the company tax plan.
Labor has sent no signals that company tax relief is among its reform priorities and has instead looked at ways to crack down on tax avoidance by multinationals and make changes to the resource rent tax for gas exporters.
Ed Husic, the former industry minister, in May last year was reportedly scolded for publicly backing a lower company tax rate or expanded investment allowance.
A survey by Newgate released this week found that only 25% of Australians supported cutting the company tax rate, and nearly half opposed it. But Robson said the PC was 'focused on good reform ideas'.
'We think it's a good proposal that's worthy of serious consideration, and we leave the politics to others.'
Economists have long blamed Australia's declining productivity on a similar decline in capital expenditure as a share of the economy and Robson said the company tax cut was the 'main lever' to drive investment growth.
Under the plan, the company tax rate on the 1.2m companies that earn below $50m would drop from 25% to 20%, while the rate for roughly 7,000 businesses earning between $50m and $1bn would fall from 30% to 20%. That would leave about 500 of the biggest firms with no additional tax relief.
The deep cut to the company income tax rate would be accompanied by a world-first net cashflow tax of 5%, which would apply to all businesses and help make the tax package 'broadly' revenue neutral over the longer term.
'The introduction of the net cashflow tax means that while most companies will pay less tax, the total tax burden will rise for some large companies, especially those not undertaking new investment,' the report said.
'Overall, the new tax will incentivise new capital expenditure across all firm sizes.'
The PC will now conduct another round of consultation ahead of a final report due by the end of the year.
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