The world leaves Australia behind on company tax

No advanced country is as dependent on company tax to finance its government as is Australia.

No advanced country is as dependent on company tax to finance its government as is Australia and no advanced country treats its companies so poorly.

At first blush, it is strange to see Australia ranked alongside nations like the Republic of Congo, Costa Rica, Indonesia and Botswana in the OECD’s Corporate Tax Statistics’ tables on the tax treatment of investment.

Yet while Australia has remained frozen with the company tax regime established almost two decades ago, the rest of the world has moved on.

In 2000, 62 per cent of nations had company tax rates of 30 per cent or more. Now only 19 per cent do, and they are all developing nations with little ability to tax personal incomes and dependent on company tax flows.

Even among developing nations, many of those with high tax rates provide incentives to invest.

Australia’s debate over company tax cut was poisoned by the claims of Labor and the Greens that it was all about delivering a backhander to former Prime Minister Malcolm Turnbull’s investment banking mates at the “top end of town”.

Yet it was never about that. It was a debauched political debate. The OECD shows that in tax competitiveness, Australia has dropped to the bottom of the advanced world.

For the moment, Australia still receives strong inflows of foreign direct investment as global businesses seek access to mineral and agricultural resources and to the opportunities that flow from our fast growing cities and our links into the Asian region.

Yet tax forms part of any investment calculation. The OECD shows Australia’s company tax regime is particularly harsh on intellectual property, which loses its economic value much faster than it is allowed to be written off.

As intellectual property becomes the driving force of advanced economies, the investment flows will dwindle, jobs will be lost, and budgets will return to chronic deficits.

Biting the hand that feeds you inevitably leaves you hungry.