Business carries burden as world moves to tax reform


The Australian, September 28, 2016:

Business pays more tax in Australia than in any other advanced country except oil-rich Norway, and its company tax rate is ­increasingly uncompetitive as other countries introduce fresh cuts.

An OECD survey of tax reform initiatives shows most countries collect more tax revenue than they did before the financial crisis and are focusing tax reforms on lowering personal and corporate income taxes.

A high tax rate and profitable mining and banking sectors mean company tax raises 4.9 per cent of GDP in Australia, significantly higher than the OECD average of 2.9 per cent. Before the financial crisis, Australia was raising the equivalent of 6.8 per cent of GDP from its company taxes, or almost double the OECD average of 3.6 per cent at that time.

The report shows five of the 34 advanced nations cut their company tax rate last year while ­another four announced cuts to take effect over the next few years. Australia was among three countries cutting rates for small business while other countries cut company taxes by offering fresh deductions for innovation and other business investment.

The OECD shows that since Australia last cut its company tax rate in 2000 to 30 per cent, the ­average company tax rate has fallen from 31.6 per cent to 24.7 per cent. It has dropped two percentage points since the financial crisis.

When Australia’s 30 per cent rate was introduced, there were only 12 advanced countries with lower rates, but that number has risen to 28. There are only six countries with higher rates and that number will shrink to four over the next four years as France and Italy introduce fresh company tax cuts.

“Reductions in the corporate tax burden are aimed at encouraging investment and increasing international competitiveness,” the OECD says. “Although this may further increase downward pressure on company income tax revenues, it may have positive impacts on future growth prospects.”

The OECD notes that business investment has been weak around the world since the crisis and that this has constrained the recovery.

Britain, which also had a 30 per cent company tax rate in 2000, has been one of the most aggressive rate cutters, with its rate down to 20 per cent and scheduled to reach 17 per cent by 2020. Under the schedule set out by the Coalition, the standard company tax rate would remain at 30 per cent until 2024-25 before being lowered to 25 per cent by 2026-27.

Labor has vowed to block any tax cuts for companies with turnover greater than $2 million.

Unions also opposed any cuts to company tax, with the ACTU’s submission to a Senate economics inquiry, released yesterday, saying they would neither generate jobs nor improve living standards.

“The actual determinants of ­investment are a highly skilled workforce, good infrastructure, quality public services, decent wages and high disposable ­incomes for strong consumer ­demand,” the submission said.

“A strategy for growth and ­investment that relies only on tax cuts for big business is shortsighted and ill conceived.’’

Tax has reached a record 34.4 per cent of GDP throughout the OECD, while Australia has the sixth lowest rate of 27.5 per cent.