Company Tax Cut for federal budget?

18 April 2016
Will a company tax cut be included in the upcoming federal budget? It’s not at the top of business’ wish lists.

There is increasing speculation that the federal government may include a company tax rate cut in the upcoming federal budget – however a survey of 523 businesses across Australia conducted by business and corporate advisory corporation, BDO, found that the company tax rate isn’t one of the top priorities for businesses in the current environment.

BDO National Tax Director Lance Cunningham said multinational profit shifting was identified as the number one priority issue, with GST and state taxes rounding out the top three areas most in need of reform.

“This year’s survey attracted more than double the number of respondents than in 2015, a clear sign the business community still sees holistic tax reform as an urgent priority even if the government does not,” he said.

Recently, the Federal Government has hinted that company tax rate cuts could be included as part of this year’s Federal Budget, however the BDO survey revealed that, while a company tax rate cut would be welcome, businesses identified other areas as more urgent priorities.

“Like previous announcements regarding carve outs of specific tax areas like GST and individual income tax, there is danger in addressing one-off measures like company tax cuts without taking a holistic view,” Mr Cunningham said.

The top tax priorities for business

1: Multinational profit shifting

“The fact that survey respondents still considered this the primary issue could suggest either the public does not see these changes as going far enough, or, and more likely, the Federal Government has not sufficiently educated the public about these quite extensive and complex changes to elevate multinational profit shifting,” Mr Cunningham said.

“Respondents rated multinational profit shifting as the issue most in need of urgent tax reform.”

Overall, Victorians were most likely to agree adoption of OECD’s BEPS initiative is in appropriate way of discouraging companies from avoiding taxation in Australia, while Queenslanders were least likely to think so.

2: GST

“80.54% of respondents agreed a review of the GST is essential to any discussion of tax reform, with many (60.23%) in favour of abolishing all GST exemptions to simplify the system,” Mr Cunningham said.

“In terms of how increased GST revenue might be best directed, most respondents preferred the abolition of state stamp duties and reform of other state taxes (62.4%) over assisting the states to adequately fund health and education (52%) or enabling a cut to personal taxes (52%).”

On a state by state basis, Victorian respondents were the least open to changes such as lifting the GST rate or abolishing exemptions, while Western Australians were most likely to agree the GST rate should be increased to enable to abolition of state stamp duties and reform other state taxes.

3: State Taxes

“85.36% agreed state stamp duties are a significant impost on business and reduce the mobility of the population and businesses by discouraging the sale of residential and business real estate, and other business assets,” Mr Cunningham said.

“Changes to state payroll taxes were also popular, with 82.59% in agreement they should be reformed to reduce the rates and either reduce or abolish the wages thresholds to make it more efficient, and 80.2% agreeing the taxes should be abolished as they discourage employment and are a disincentive to growing business.”

Australians Deserve a Balanced Debate on Company Tax

While the company tax rate may not be at the top of the priority list for businesses, it would appear to be near the top for industry groups with the Business Council of Australia (BCA) currently pushing the benefits of a lower company tax rate.

“Australians benefit when Australian businesses are more globally competitive. It results in more jobs and better paying ones,” said Business Council Chief Executive Jennifer Westacott recently.

“The idea that we should accept an uncompetitive company tax rate suggests we ought to be happy losing out in the global battle for investment. If you extend this to all of our high costs – whether it is environmental laws, labour, or regulation – it assumes investors and businesses will always want to stay here because they like us.

“This investment – whether it comes from domestic or foreign sources – means a bigger business, newer machinery, better technology, more productive enterprises; and this provides the capacity to employ more Australian workers and pay them higher wages.

“Treasury has shown more than half of the benefit of company tax flows to workers through jobs and higher wages over time.”

So what business-related tax issues are we likely to see in the federal budget? The government is remaining tight-lipped at this stage.

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