Why Australia Needs a Competitive Company Tax Rate
16 October 2017
Australia is at imminent risk of having the 3rd highest company tax rate in the developed world if the Parliament leaves the top rate frozen in time at 30%, warns Jennifer Westacott, chief executive of the Business Council of Australia.
"We are kidding ourselves if we think we can impose one of the highest tax rates in the developed world on Australian businesses and expect them to thrive, invest and create jobs," Ms Westacott said.
"As other countries have slashed their company tax rates to improve their competitiveness, Australia has been left to languish with a rate that has been unchanged for 16 years.
"The average company tax rate across the OECD is 24% and falling. The average across Asia is 21%.
"The USA’s announced intention to cut its rate from over 35% to 20% will have a dramatic impact on investment and competitiveness while even France, which has traditionally put high taxes on business, has said it will cut its rate from 33% to 25%.
"The UK has legislated to drop from its already low 19% to 17%.
"Australia currently has the 5th highest company tax rate in the OECD and it will be the 3rd highest once the USA and France deliver on their pledges to slash their company tax rates.
"This global action should be a wake-up call for the Senate that Australia cannot afford to stand still, since every company tax reduction overseas is a de facto tax increase on Australia.
"Doing nothing is no longer a credible option. We must take action to protect Australian jobs, the Australian economy and Australia’s competitiveness.
"Both sides of politics have in the past realised the importance of reducing the company tax rate to grow the economy. It was the Keating government in 1993 that lowered the rate to 33% to put Australia – at that time – well below the OECD average.
"The Howard government in 2001 took action to keep it below the OECD average by cutting to 30%.
"The proposal currently before the Parliament to lower the rate to 25%, will take a decade to be phased in, and will still leave Australia above the OECD average and significantly higher than other countries with whom we compete for investment and jobs.
"Australia needs a pro-growth competitive company tax system for all businesses – big and small – to stimulate investment, raise productivity and increase the real wages of working Australians.
"As former Treasury secretary Ken Henry told the Gillard Government’s tax forum in 2011 “if the company income tax were to be cut, the principal beneficiaries will be workers”.
"If we want the nation to thrive, we need business to succeed. If you reduce the tax on Australian business, you create the opportunity for more investment and more jobs.
"A business that isn’t thriving can’t create jobs and can’t give workers a pay rise.
"The decision by the Parliament in March to restrict the tax cut to business with a turnover of up to $50 million a year leaves the job half done and our economy at risk as other countries become more competitive in the global race for investment.
"We cannot afford not to finish the job of lowering the company tax rate for all Australian businesses.
"Those who attack the case for company tax cuts have no alternative credible plan to get investment growing strongly again.
"We are seeing welcome green shoots emerge but business investment remains well below where we need it to be and as share of our economy is at the lowest its been since 1994, in the shadow of the 1990s recession.
"The Treasury estimates reducing the company tax rate to 25% will increase GDP permanently by 1% or $17 billion a year in today’s terms.
"That is twice as big as the lasting economic benefit of the much-lauded landmark tariff cuts of the 1980s and 90s.
"Increasing the size of the nation’s economic pie by $17 billion every year will also provide more money for hospitals, schools and essential services.
"Real fairness is about ensuring people can access good jobs and growing incomes in a more prosperous country that has the capacity to support the genuinely disadvantaged.
"A competitive company tax system will provide the opportunity for Australia to have more profitable companies that pay tax, employ more Australians, have small business suppliers who depend on that business being successful, and deliver for customers who rely on them to provide goods and services.
"The private sector employs around 10 million of the 12 million Australians who work – five out of every six jobs.
"Australia is at a critical junction.
"We are falling behind on our tax rates. We have no time to waste," Ms Westacott said.
- Australia’s top company tax rate of 30% is the 5th highest in the OECD. It could soon be the 3rd highest.
- The average company tax rate across the OECD is 24%
- The average company tax rate in Asia is 21%
- The US has announced plans to cut its federal rate from 35% to 20% and the UK has legislated to drop from its already low 19% to 17%.
- Australia’s company tax rate has been frozen in time for 16 years. We are falling behind.
- The proposed reduction to a top rate of 25% will permanently grow the Australian economy by 1% or $17 billion a year in today’s terms – twice as big a benefit as the landmark tariff cuts of the 1980s and 90s.
- Reducing tax on Australian businesses creates opportunity for more investment which drives the productivity that creates the conditions for more jobs and higher wages.
- The principal beneficiaries of a company tax cut will be workers, says Ken Henry.
- Australia needs a pro-growth competitive company tax system for all businesses – big and small – to stimulate investment, raise productivity and increase the real wages of working Australians.
- A business that isn’t thriving can’t create jobs and can’t give workers a pay rise.
Both sides of politics have in the past realised the importance of reducing the company tax rate to grow the economy. The Keating government in 1993 and the Howard government in 2001 both cut the company tax rate to keep Australia’s rate below the OECD average.
Media Contact: Jared Owens, 0418 824 111