A cut in Australia’s company tax rate will deliver economy-wide benefits that are necessarily in the national interest.
As a result, The Tax Institute supports reducing the company tax rate in the medium term from its current 30% to the 25% recommended by the Henry Review. In addition to increasing
Australia’s attractiveness as a destination for foreign investment, a 25% rate is comparable to
rates in similar sized OECD countries. A 28% rate would be a step in the right direction and
Australians across the board will stand to share in these benefits.
A wealth of reliable evidence indicates that the incidence of company tax falls on employees.
This means that reducing the burden of company tax is expected to result in companies passing on the benefits to their employees either in the form of increased wages or additional
recruitment – increasing productivity and employment.
A company tax cut would also reduce taxes on investment, driving an increase in savings andThis is bad special pleading, especially bad in a globalising environment. Just how does the burden of company tax fall on employees? Further, why should a fall in the benefits of the tax rate for specific companies be passed onto employees by that company?
capital as well as innovation and entrepreneurship – all outcomes that are indisputably in the
interests of all Australians. Such a cut would also reduce the incentive for profit shifting out of
Australia, allowing us to retain a greater share of the profits generated here in Australia.
The traditional argument runs that lower company tax rates increase the incentive to invest by increasing the net return on investment, thus encouraging more investment and more environment. That may or may not be true. I am not sure that it is when company tax rates are relatively low and when the scope for tax shifting is substantial.
Profits will still be shifted, while companies may pay more in dividends. Not that the last is necessarily a bad thing. Further, within companies the increased pot is likely to go those with the most bargaining power, and that's not the ordinary employee.
Governments need funds to pay for services and investment, to maintain the structure on which profits depend. It is clear that Australia is under investing, especially in key infrastructure. Now Governments don't, it seems, have enough money to do minimum things. And yet, we want to cut taxes further.
When company tax rates were 40% plus, the argument for lower tax rates was highly persuasive. But a shift from 30% to 25%? Where do you draw the line? Are we saying that economic benefits will be maximised at a company tax rate of zero? If not, what is the optimum company tax rate?
I think that Australians would be more sympathetic to the arguments about lower company taxes if the could see the benefit to them. They don't, and for understandable reasons. They just don't seem to benefit.
Maybe its time to ask why not freeze the company tax rate at its current level? If the extra money raised was used to fund infrastructure, then we might all be better off.