A 22 per cent business tax rate on the far horizon

The Business Council of Australia wants to keep the GST argument alive as part of a push to slash the company tax rate to 22 per cent by 2025.

Despite Prime Minister Malcolm Turnbull describing a higher GST and lower company tax rate as the "go in to the study, get out the service revolver and blow your brains out" political option for tax policy, the big-business lobby group argues the 30 per cent tax rate for large businesses should be cut within a year to bring it into line with the 28.5 per cent rate for SMALL BUSINESSES.

Within five years, the company tax rate should fall to 25 per cent, which the group said would boost the economy by $9 billion, pushing federal tax collections $2 billion higher through more economic activity.

The tax cut would come at a cost. A uniform 28.5 per cent rate for all business is tipped to cost $2 billion if introduced this financial year and a 25 per cent tax rate would cost $8 billion.
 

Australia's top-12 companies, including BHP Billiton, Rio Tinto, the four major banks, Telstra, Wesfarmers and Woolworths, pay a third of the nation's tax revenues. The Business Council argues Australia has stood still over the past decade while neighbouring Asian economies have drastically slashed their marginal effective corporate tax rate to attract foreign capital.

Australian companies now pay the second highest effective tax rate in the Asian region, up from the third-highest tax rate a decade ago.

The big business plan involves three "horizons" for tax changes: first is a uniform 28.5 per cent company tax rate, the second horizon is a 25 per cent company tax rate accompanied by personal income tax cuts by 2020, and the third horizon after 2025 is the 22 per cent business tax rate and more "neutral" tax on savings income.

It is at this stage – after 2025 – that the Business Council says changing the GST should be "back on the table".

Australia's biggest companies representative argues the two company tax rates creates distortions and company tax cuts over the next five years will provide investors with a shot of confidence to invest.

It argues a company tax cut would create more of an economic return than other types of tax reductions because it would lower the financial hurdles to new investment like new stores, plants or acquisitions.

"The biggest beneficiaries over time would be workers, who gain from higher wages and more jobs associated with stronger investment and higher labour productivity," the Business Council's tax blueprint said.

"A 25 per cent company tax could increase annual wage income by more than $4 billion, or the equivalent of over 50,000 full-time jobs paying average EARNINGS," it said. 

Source : The Australian Financial Review, dated 08/03/2016