FSC calls for 22% company tax
The Financial Services Council has proposed a new tax package calling for company tax to be cut to 22% from its current 30%.
The industry body also wants to see “lower, flatter, indexed” income tax rates.
The FSC said its tax reform package is designed to “grow the economy and reverse Australia’s collapsing competitiveness and flat productivity.”
Modelling commissioned by the FSC and conducted by KPMG shows that these cuts can be fully funded by increasing the Goods and Services Tax (GST) to 15% and will at the same time offer Australia a wide range of economic benefits, including a 3.7% increase in investment (with more than half of that figure coming from off-shore) and tens of thousands of new jobs. The modelling shows Australia’s economy will be 1.9% bigger after the changes.
In addition, employment will rise 0.1%, real wages will increase 1.4% and productivity will rise 1.8%.
Within the package the FSC has also renewed its calls to State governments to remove stamp duties on insurance which it said result in costs being passed on to consumers with little returned to the states.
“Insurance duties are one of the least efficient taxes. One quarter of the revenue collected is lost in administration costs,” said the report.
The average company tax rate in Asia is 22%, compared to Australia’s which is 30%. The company tax rate in the UK is being lowered to 18% in 2020.
FSC director of policy Andrew Bragg said: “Australia needs a new tax mix to create growth, jobs and investment. Our modelling shows a new tax mix can be fully funded and fair for all Australians. Cutting company tax to 22% is the centrepiece of the new tax mix package.
“Indexing the personal income tax thresholds means there is no more easy money for Canberra.Australia’s ageing population demands that our governments restrain expenditure. Ending bracket creep will drive better fiscal accountability. Indexing the tax thresholds also prevents compensation given to households through tax cuts from being whittled away by bracket creep.”
The FSC said another benefit of a lower company tax rate of 22% will be a reduction in the federal budget’s reliance on corporate tax. The OECD average reliance on company tax is 8%, while Australia’s is more than 18%.
A lower reliance on company tax will mean Australia’s budgets will be less subject to revenue writedowns we have experienced over the past decade.
A lower company tax rate will also lower the incentive for multinational companies to engage in profit shifting while a multilateral solution to base erosion and profit shifting is developed by the OECD and G20, the FSC said.
