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02 May 13 Preamble - 3 May 2013

There is a chorus of support in Australia for a cut to the company tax rate.  It will deliver economy-wide benefits that are necessarily in the national interest.  We saw this played out in last year’s Business Tax Working Group process headed by Chris Jordan.

This is why The Tax Institute continues to support reducing the company tax rate in the medium term from its current 30% to the 25% recommended by the Henry Review. In addition to increasing Australia’s attractiveness as a destination for foreign investment, a 25% rate is comparable to rates in similar sized OECD countries. Even a modest cut to say 28% would be a step in the right direction and Australians across the board stand to share in the benefits. Companies are able to pass on the benefits to their employees, either in the form of increased wages or additional recruitment, thereby increasing productivity and employment.

It is in this context that it is worth noting that the Federal Coalition proposes to increase the company tax rate for the largest 3,200 companies by 1.5 percentage points. The revenue from this change would fund a paid parental leave scheme that is more generous than the currently legislated scheme.

Such a proposal flies in the face of the many positives that a rate cut would bring.  In addition, as the recently released ATO Tax Statistics indicate, increasing the rate for the top 3,200 companies will impact on some SMEs with turnovers between $10 million and $100 million.  This is because there are less than 3,200 large companies (as defined) in Australia.

We look forward to further engaging in the public debate on this and other tax proposals as the election year progresses.

Kind regards
Robert Jeremenko CTA