Company tax cuts in Australia are long overdue.
The average company income tax rate in the OECD has dropped from 32 per cent in 2000 to 24 per cent today.
That’s why this week officials from the Department of Treasury published a paper outlining the potential impacts on the rest of the world if the United States drops its federal company tax rate from 35 to 20 per cent, as President Donald Trump has promised.
Treasury is staggeringly clear about the impacts on Australian households and businesses if our company tax rate remains static while the US’s drops: we will have less investment, slower productivity growth, lower wages, and less jobs and economic activity.
Buried away in the paper is an account of recent and proposed reductions in company tax rates overseas:
- Canada reduced its federal company tax rate from around 22 per cent to 15 per cent between 2006 and 2012 (bringing its combined average federal-provincial rate down from 33.93 to 26.10).
- Singapore cut its rate from 20 per cent to 17 per cent between 2007 and 2010.
- Tax rates have dropped in the UK from 30 per cent in 2007 to 19 per cent today, and are scheduled to fall further to 17 per cent by 2020.
- Across the Tasman, New Zealand cut its company tax rate from 33 per cent to 28 per cent between 2008 and 2011.
- Norway’s rate was reduced from 27 per cent to 24 per cent between 2015 and 2016.
- Israel reduced its rate from 26.5 per cent to 24 per cent between 2015 and 2017.
- Japan lowered its effective rate from 32.11 per cent to 29.97 percent in 2016, with a further reduction to 29.74 per cent scheduled in 2018.
- In December 2016, the French Parliament approved the Finance Bill for 2017, which includes a progressive reduction in the company tax rate from 33 per cent to 28 per cent over the period 2017 to 2020. Furthermore, French President Emmanuel Macron announced as part of his election campaign his intentions to extend this tax cut further to 25 per cent.
The Government’s 2016 Enterprise Tax Plan would reduce all corporate tax from 30 per cent to 25 per cent by 2027. If it were fully implemented as initially proposed, it would provide a 1 per cent permanent boost to GDP, and raise 45 cents per dollar of net company tax in the long run. - Spiro Premetis