Top tax rate of 49.5pc would push multinationals offshore
A top personal tax rate of 49.5 per cent will hasten the trend for multinationals to base their operations in Asia rather than Australia, according to recruiters and tax specialists.
“There is no doubt higher taxes make Australia a less attractive country for international executives who can just as easily base themselves in hubs like Singapore and Hong Kong,” Harvey Nash managing director Bridget Gray said.
“Of course, the government needs to factor in lots of things but it shouldn’t underestimate the impact of us getting the tag of a ‘high tax’ country.”
SHK managing director Tim Morden agreed tax was a key consideration.
“It’s very difficult to say, come and earn $400,000 in Australia at a much higher marginal tax rate as opposed to $400,000 in Singapore where it’s almost all in their pocket,” he said.
Australia’s top rate is 45 per cent, which kicks in for income over $180,001.
The 2 per cent Medicare levy and 2 per cent temporary deficit levy have taken that rate to 49 per cent.
The deficit levy is due to expire on July 1 but Labor wants to keep it for those on the top rate.
And instead of supporting an across-the-board increase of 0.05 percentage points in the Medicare levy, the opposition is pushing for the increase to apply only to those on incomes of more than $87,000.
As a result, Labor policy is for the biggest earners to pay tax at 49.5 cents in the dollar.
The knock-on effect of high income tax rates for executives would be to dissuade multinationals from setting up regional headquarters here, said Joanne Wynne, a principal with professional services firm RSM.
“Why would they send corporate executives to live in Australia and pay tax as high as 49.5 per cent when they could be based in Singapore or Hong Kong and pay tax of between 17 per cent to 22 per cent,” she said.
At the same time, Australia’s corporate rate was looking increasingly uncompetitive, Ms Wynne said.
“It would even be more attractive to establish business in New Zealand where the highest marginal tax rate is 33 per cent and the corporate rate is 28 per cent.”
Rio Tinto CEO Jean-Sebastien Jacques told a Macquarie Bank event earlier this month that the company was moving more of its workers and function to Singapore, but tax was not the motivator.
“We are moving to Singapore not because of tax reasons; remember 70 per cent to 75 per cent of our revenue is in Asia, around 50 per cent in China and the rest in Korea and Japan,” he said.
“We need to develop a strong commercial capability to really understand what is happening in the market and with all due respect, one of the best locations where you can place people to do that is in Singapore.”
Being able to recruit Mandarin speakers as another key consideration, Mr Jacques said.
“To be very frank if you want people who can speak Chinese and if you don’t want to put them in China for compliance reasons so on and so forth, think about where you are going to put them. It is not going to be Perth, it is not going to be Darwin, and it is not going to be Tokyo to state the obvious.”
KPMG tax partner Ablean Saoud said Australia’s high corporate tax and recent changes to 457 visas might have more influence on decision-making than personal tax rates.
“The 457 changes are causing a lot of angst, and the corporate tax rate is an issue for multinational companies doing business in Australia.”
Most executives came to Australia for lifestyle, access to good schooling and the “experience”, Ms Saoud said.
Moreover, while many foreign executives were charged the 2 per cent Medicare levy, they received a refund if they did not have access to Medicare services.