Modelling Australian corporate tax reforms
Source: Australian Tax Forum Journal Article
Published Date: 1 Apr 2018
As a small open economy, Australia can expect that foreign investors will add our corporate tax burden to the minimum rate of return that they require to invest here, rather than absorb it. This discourages foreign investment and leaves local labour to bear the final burden of local corporate tax, discouraging labour supply. This double disincentive effect led Gordon to recommend against applying corporate tax in a small open economy. More recently, Auerbach et al have argued that international profit shifting has added to the case against corporate tax in its current form. Australia further undermines the efficiency of corporate tax as a revenue raiser by returning a substantial portion of the revenue through a dividend imputation system that Fuest and Huber show is undesirable for small open economies.
At the same time, Boadway and Bruce show that corporate tax can be efficiently applied to the returns from immobile assets such as land, minerals and local market power, leading to calls to narrow the corporate tax base to only capture such economic rents. Using economy-wide modelling, this article quantifies the substantial consumer benefits from tax reforms that reduce the corporate tax rate, narrow the base to economic rents, or replace imputation with less generous dividend tax concessions. The already substantial benefits of these business tax reforms have increased as a result of the US business tax changes under the recently passed 2017 Tax Cuts and Jobs Act.
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Details
- Published By: Chris Murphy
- Published On:1 Apr 2018
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