A reduction in Australia’s uncompetitive company tax rate would primarily benefit wage-earners and consumers, promote innovation and stimulate new foreign investment and economic growth.

This is the principal finding of a new analysis of Australia’s company tax competitiveness by one of the world’s most respected analysts of international corporate tax regimes.

The study was led by Dr Jack Mintz, the President’s Fellow at the School of Public Policy at the University of Calgary in Canada.  Dr Mintz has developed one of the world’s most comprehensive and sophisticated data-sets of national corporate taxation regimes and previously chaired a detailed major inquiry into Canada’s corporate tax system.

The study recommends that Australia signal a move to a 25 per cent company tax rate, noting it should also consider an eventual move to a 20 per cent rate to match that of the United Kingdom. The study identifies three imperatives for reform.

First, the report finds that Australia’s company tax rate is now the fourth highest in the 34-member OECD and has failed to match the global trend toward lower company tax rates.  “Australia has become stuck in the quicksand, watching others pass by,” the report states.

Second, the report demonstrates that the burden of Australia’s high company tax rate falls largely on wage earners and consumers. “It is a myth that company taxes are paid by the rich and powerful. A survey of recent studies shows that at least two-thirds of company tax is shifted onto labour through higher consumer prices, wage cuts and lay-offs,” the report states.

Third, the report concludes that high company tax rates inevitably lead to lower investment, with consequent adverse impacts on innovation, productivity and wage growth.  A high company tax rate ‘hurts growth by deterring investment decisions and the adoption of new technologies,’ the report found. 

Conversely, the Mintz study also highlights the impact that a lower company tax rate would have in stimulating new investment, especially foreign investment. “Studies show …foreign direct investment flows growing by as much as 2.5 per cent for each one point reduction in the corporate income tax rate,” the report concludes.

The report includes detailed analysis of both statutory company tax rates and marginal effective tax rates (the tax burden on new investments).  The comparison is even worse for Australia on the latter measure.  It now has the fourth highest tax burden on capital investment among OECD countries and the 8th highest among the larger set of 45 countries examined.  These results are for non-resource investments (services and manufacturing). 

The Mintz study also shows that Australia’s tax burden on mining is one of the highest among major mining countries.  Based on effective tax and royalty rates on iron ore investments, Australia in 2015 had the third highest tax burden on new investment among nine resource-based economies.

Download complete article

Download associated document