Cutting the company tax rate by 5% would boost the economy and that would eventually generate enough extra tax to make up for the lost government revenue within five years, according to modelling done by PwC.
Fairfax reports lowering the corporate tax rate to 25% would boost the federal government’s coffers by $4 billion within five years, thanks to higher levels of employment and more successful businesses.
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As SmartCompany has previously reported, Australia has a relatively high company tax rate in comparison to other developed nations.
Our corporate tax rate currently sits at 30%, while the global average is around 23.6%.
There is also a shift towards trimming company tax around the world, with the UK, Spain, Denmark and Japan all slashing their corporate tax rates this year.
Germany and Chile were the only two countries in the OECD to increase their company tax rate this year.
The government is currently considering whether or not to trim Australia’s corporate tax rate and, if so, by how much as part of its tax reform process.
Under previous prime minister Tony Abbott the government often touted a 1.5% cut to the corporate tax rate and in the May budget it cut the corporate tax rate to 28.5% for small companies with annual turnover of under $2 million.
Small unincorporated businesses received a 5% “tax discount” in the government’s small business budget package.
Peter Strong, chief executive of the Council of Small Business of Australia, told SmartCompany it’s clear the government should reduce the corporate tax rate if it is serious about growing the economy.
“Most small businesses aren’t incorporated, so there are other issues for us there,” Strong says.
“But company tax rates need to fall – there’s no doubt about that.”
Strong says he welcomes the research into a 5% cut to company tax, given this is what Opposition Leader Bill Shorten proposed during this year’s budget reply speech.
However, Strong points out that whether or not businesses will get a 5% reduction in corporate tax remains to be seen.
“The GST debate is clearly going to be important around this as well, so it’s not just one issue,” he says.
“As the government and everyone else has said, everything is going to have to be brought onto the table if we are to get the changes we want.”