Media & Speeches

Lower company rate tax key to higher living standards

This opinion article by Chief Executive Jennifer Westacott was published in The Courier-Mail on Tuesday 20 December 2016.

Arguments for burdening enterprises with high taxes demand to be challenged.

Last week columnist Paul Williams made several claims about the Turnbull Government’s plan to tackle a huge barrier to increased business investment in Australia: our uncompetitive company tax rate.

He also appeared to suggest that unprofitable businesses should pay tax on their losses – a plan that would jeopardise many thousands of jobs – and apparently conscripted to the cause Liberal Party founder and Australia’s longest-serving prime minister, Robert Menzies, who had plenty to say about the role of enterprise in driving social progress.

This is a crucial moment for our country. After a quarter of a century of strong economic growth that has delivered better living standards for almost everyone, there are clear warning signs of turbulence ahead.

The economy shrank between July and September and new business investment continues to fall at its fastest rate since the 1990s recession. Wages are also growing at their slowest rate in 18 years and federal government debt has climbed from near-zero to $300 billion since 2009.

One of the most direct ways of overcoming these challenges is to make Australia more attractive to global investors who have the choice of doing business in almost any corner of the world.
Australia’s company tax rate of 30 per cent is among the highest in the developed world and it’s a handbrake on our ability to attract investment.

Other countries know this. Britain is cutting its rate to 17 per cent by 2020. The incoming US administration has pledged to reduce its rate to as low as 15 per cent. The average company tax rate across Asia is 22 per cent.

Every time one of our competitors cuts its company tax rate, it is an effective tax increase on people doing business here. We can’t afford to be caught standing still as the rest of the world presses ahead.

Malcolm Turnbull’s plan to incrementally lower the rate to 25 per cent in 2026 is a modest, sensible initiative that deserves the support of Parliament.

Stimulating investment this way helps reinvigorate growth, which is essential to lifting real household incomes, funding the social safety net and providing the dignity and freedom that comes with a good job.

When people pretend the nation can continue to flourish by imposing tough barriers to business investment, they are attacking one of the main forces capable of ensuring future generations can enjoy ever higher standards of living.

History has proven Menzies right that, while a social safety net is essential, the greatest engine for social mobility is the chance for a better, higher paying job.

In his work, The Forgotten People, Menzies venerated big business as a “magnificent servant” of the people that provided “employment to many thousands”. Menzies’s own government reduced company tax to encourage investment and create jobs.

As for criticising companies which report substantial revenue but pay no tax, the fact is companies pay income tax of 30 per cent on their profits – that is, revenue minus costs.

A builder who charges $200,000 to construct a house doesn’t immediately hand $57,000 to the government; the business pays tax on what it retains after paying wages, rent, supplier costs and other operating expenses.

In the same way, a large company that experiences a sharp downturn or makes a major investment will pay less company tax. But they will pay more taxes as profits rise in future years. This can also happen when global conditions change, as our mining companies have seen with the end of the resources boom.

Taxing unprofitable businesses for every dollar that passes through their hands will hardly allow them to dig their way out of trouble.