Australia’s competitors leave us standing still in the global tax race

Australia is falling further behind on tax competiveness, with our company tax rate – the second-highest in the developed world – frozen for 18 years while our competitors sprint ahead by cutting tax rates.

A new report for MCA by international tax expert Dr Jack Mintz warns that US tax reform is spurring other countries to continue to cut their tax rates, while Australia’s punishing 30 per cent corporate tax rate will make it much harder for Australia to compete for investment, jobs and tax revenue derived from new capital inflows.

Based on Dr Mintz’s research, MCA will continue to advocate for future company tax reform in Australia as part of broad tax reform – including further personal and small business tax cuts – that complement changes already legislated by the Federal Parliament.

As a medium-sized capital importer, an excessively high tax burden on Australian business and investments will handicap our future economic growth – including in regional communities sustained by our world-leading minerals industry.

A more competitive company tax rate is critical in helping Australia compete for investment and boost innovation, productivity and wage growth.

The overwhelming consensus among economists, Treasury and international economic agencies is that a lower company tax rate will benefit workers by boosting economic growth, wages and jobs.

The report – which estimates effective tax rates since the US tax reforms substantially reduced company tax rates under President Donald Trump – finds that Australia’s company tax rate of 30 per cent is the second-highest in the developed world.

We now have the equal fifth-highest company tax rate amongst the 43 countries surveyed in the report behind Zambia, India, Brazil and Portugal, and a rate which is higher than the weighted average company tax rates for the G7, G20 and OECD.

Importantly, the report measures marginal effective tax rates around the world including tax depreciation regimes, stamp duties and other taxes.

Based on these calculations, Dr Mintz has found that Australia’s marginal rate is 28.4 per cent – the third- highest burden on new capital investment in the developed world.

The report recommends a modest rate cut to 25 per cent would help restore Australia’s competiveness by reducing the effective tax rate on new investment in Australia to 24.3 per cent.

Labor’s Australian Investment Guarantee – a form of accelerated depreciation – would reduce the effective rate slightly less to 25.9 per cent.

With little progress on corporate tax reform in the two decades since the 1999 Ralph Review of Business Taxation, a detailed review and sensible discussion of Australia’s tax options to reduce effective tax rates on new investment is long overdue.

The Australian community deserve a discussion based on facts and a Parliament willing to back a broader set of taxation reforms, including personal tax cuts. Regaining our corporate tax competitiveness of 20 years ago would attract the investment needed to grow our economy and support jobs, especially in regional Australia.

ends