Australia has one of the highest personal and corporate tax rates in the Organisation for Economic Co-operation and Development, according to research published by accountants KPMG.
The research shows Australia’s 30% corporate tax rate and 45% personal income tax rate are higher than the OECD average of 25.32% for companies and 41.51% for individuals.
While Tony Abbott has pledged to reduce the company tax rate by 1.5% to 28.5% from 2015, more needs to be done.
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Australia is still behind most other nations when it comes to company tax with Ireland offering the lowest corporate tax rate in the OCED of 12.5%.
The current high tax rates are disincentives for investment and are making it increasingly difficult for Australian business to compete internationally.
It’s not just the corporate tax rate that needs to be cut.
For many small businesses, the individual income tax rate is just as important.
Most Australian businesses are both small and unincorporated and are therefore taxed at individual marginal tax rates and not the corporate tax rate.
A cut in personal income tax rates is not only a benefit for salary earners, it is also a cut in tax for Australian small business.
Of course these tax cuts need to be funded somehow, most likely through an increase in the rate of GST and broadening the taxation base.
That’s unlikely to be popular but without any action, we can only expect to see more businesses based in Australia look at relocating overseas, which will have dire consequences for the economy and employment.