Lower company tax rates are a must for productivity growth

Industry Minister Ed Husic has made the welcome and obvious point that cutting company tax rates is a key to restarting stalled productivity growth in the economy. His comments on Tuesday are a breath of fresh air given the Albanese government’s penchant for picking winners and putting obstacles in the way of free enterprise. Rather than greater union involvement, less workplace flexibility, tougher industrial relations laws and more red tape, what business needs is a free hand to make decisions and invest where it judges it will make the best returns. Mr Husic acknowledged this when he said it was time to consider corporate tax reform or greater investment allowances to unlock capital for investment.

Australia has the third highest corporate tax rate in the OECD and has been a net exporter of capital for the past four years as other countries, such as the US, lower tax rates. The message is we must do more to compete. When Labor was in opposition it refused to support Coalition plans to cut company tax rates, but Mr Husic says with wages moving now is the time to consider giving business some incentive. The logic may be tortured but the recommendation is sound. Rather than attempt to pick winners for subsidy largesse, government policy should be directed to setting the most flexible investment rules for everyone. Cutting the company tax rate is the equitable way to do this. Allowing business to write off investments to a certain value quickly with an accelerated depreciation regime for the balance is another option.

The key is to let businesses decide where they want to invest. Mr Husic is correct to identify that lower company tax rates are needed urgently to address the crisis in productivity. Australia’s productivity slumped this year to its lowest level in 60 years, 1.2 per cent a year. Mr Husic said part of that was linked to the slowing pace at which industries were replacing ageing assets or embracing new technology. He said even a 1 per cent increase in robotics could lift whole-of-economy productivity by 0.8 per cent. With one Labor minister starting to talk sense on company taxes, the Greens demonstrated again why they cannot be trusted with the economy. Greens Treasury spokesman Nick McKim said instead of reducing corporate taxes we should be introducing a super profits tax to punish companies that had driven inflation.

The Greens’ approach is a recipe for less productivity and an invitation for investment outflows to accelerate. Mr Husic is on the right track and deserves support.