01 Apr 11 Preamble - Friday 1 April 2011
This week we saw the Greens announce their position on company tax. They will oppose the Government’s plans to lower the company tax rate to 29 per cent, instead preferring a two-tier system where only companies earning less than $250 million a year receive the lower rate. This is a significant development, as from 1 July this year the new Senate will be formed, which will see nine Greens Senators holding the balance of power.
The Tax Institute supports the notion that a lower, flatter rate of company tax is important to increase Australia's attractiveness as a place to invest. It is hard to see how lowering the rate for SMEs only would encourage this without creating distortions. It would result in increased complexity and what sort of disincentive would it provide to companies on the cusp of the SME threshold? Grow your business and pay another one per cent tax.
The Henry tax review said it was important to reduce biases that discourage risk-taking. Lowering company tax in a stepped fashion would support this. We don’t want to become engaged in a race to the bottom on company tax, but economic analysis supports a cut of one per cent, as advanced by the Government.
A proper public debate about tax reform ahead of the two-day Tax Forum in October will provide a platform to discuss reform ideas, such as Henry’s idea of a move to a 25 per cent company tax rate within five years and the implications that would flow.
Please see below for details of other activities this week.
Robert Jeremenko FTIA