Federal Budget 2016: PwC says ‘competitive’ company tax rate cut is needed

CUTTING Australia’s company tax rate makes sense because it is too high, hurting workers and living standards, the world’s largest professional services firm says.

Australia’s company tax rate is hurting workers in the hip pocket and impacting on their living standards. Picture: istock

CUTTING Australia’s company tax rate makes sense because it is too high, hurting workers, hampering innovation and hitting living standards, the world’s largest professional services firm says.

Competitor nations had reduced their company tax rates, PwC said, but Australia’s main rate hadn’t budged from 30 per cent since 2001, meaning it was now “significantly above the average rate for small-to-medium sized OECD economies” of 23 per cent.

“There are good reasons ... to commit over time to a more competitive corporate tax rate as part of a wider, pro-growth tax reform blueprint,” PwC said in a recent paper on “Protecting our Prosperity”.

The independent verdict is good news for the Turnbull Government as it sells its Budget pledge to reduce the company tax rate from 30 per cent to 25 per cent by 2026-27.

“An uncompetitive corporate tax regime diminishes investment, slowing the growth in ... future living standards,” PwC found in its December paper, which has not previously been reported.

“The economic burden ... is not felt by global investors, who can redirect their capital elsewhere, but by the owners of less mobile factors of production in Australia, including our labour force ... corporate tax is ultimately a tax, at least in part, on local employees.

“While corporate tax reform is not an economic panacea, it should feature strongly in any long-term plan for growth and innovation.”

Meanwhile, Treasury yesterday published new research showing the economy would get a boost from a corporate tax cut.

It said Australians’ living standards are determined by the terms of trade — that is, the prices achieved for our exports — as well as productivity, the size of the workforce and population.

“Any improvement in Australia’s living standards must be driven by a higher level of labour productivity”, Treasury said, because the other factors would be flat or decline for the “foreseeable future”.

A company income tax cut could raise labour productivity, it added, “even after allowing for increases in other taxes or cutting government spending to recover lost revenue”.

Workers and households would benefit from higher after-tax real wages and consumption, Treasury said.

Still, some experts argue against reducing company tax.

A cut could see Australians worse off by an estimated $1600 each, according to modelling published last month by Victoria University’s Centre of Policy Studies. Foreign investors would benefit while a drop in government revenue would increase pressure to lop spending on health, education and welfare.

Originally published as Federal Budget 2016: PwC says ‘competitive’ company tax rate cut is needed