Lower company tax rate, Productivity Commission advises treasurer ahead of roundtable

Australia Broadcast Center

2 days ago

Small companies would pay less tax but the largest could pay more under a new reform proposal from the independent agency tasked with helping to shape Labor's economic reform agenda.
In the first of several reports requested by Treasurer Jim Chalmers and slated for release in the lead-up to this month's reform roundtable, the Productivity Commission has called for a 20 per cent tax rate on profits for companies with revenue of up to $1 billion.
That would represent a significant cut for all but the largest companies from the current rate, which is 25 per cent for companies with turnover under $50 million and 30 per cent for all others.
At the same time, the commission has called for a new 5 per cent tax on net cashflow rather than profits, which could see some large companies pay a higher rate but would provide immediate tax relief for smaller companies seeking to build their capital.
The overall package would be revenue-neutral but would boost investment by $7.4 billion, economic output by $14.6 billion, and productivity by 0.4 per cent, according to modelling undertaken by the commission.
The proposal is one of several to reform company tax ahead of a roundtable, which Mr Chalmers has signalled he will use to seek new economic reforms to build on Labor's political agenda.
Prioritising "consensus" among unions, business, and economists, the three-day roundtable will start with a focus on Australia's "resilience" amid global uncertainty, and will then consider productivity and regulation, followed by the budget and tax.
The tax session will be the last and the longest, a scheduling decision that will fuel further speculation that the treasurer has an appetite to champion controversial tax reforms.
Titled "a better tax system", it will begin with a presentation by Grattan Institute CEO Aruna Sathanapally, who said last week Australia needed higher taxes.
"If we want to find a magic way to have Australia-level service expectations and remain being a low-taxing country, I'd love to know what it looks like," she told a pre-roundtable conference convened by independent MP Allegra Spender.
"But my starting proposition is we're going to have to think about higher taxes or we're going to have to think about taking chunks out of our service expectations."
Mr Chalmers has said he wants any reform proposals brought to the roundtable to be budget neutral or budget positive — that is, to raise money overall.
While that could be achieved by holding taxes steady and reducing spending, which is also on the roundtable agenda, the treasurer has left the door open to tax reform and said he wants all options on the table.
On Thursday, Shadow Treasurer Ted O'Brien, who will also attend the roundtable, said the Coalition would not support any package that raised taxes overall.
Coalition sources have consistently emphasised this does not mean it would automatically oppose any single tax increase in isolation, leaving the door open to support for a package that raised some taxes but lowered others in equal measure.
Mr O'Brien accused Mr Chalmers of "looking for more taxes to feed his spending spree" and said he would scrutinise roundtable proposals "on the principle that they be at most budget neutral; in other words, higher taxes will not be accepted".
Under the Productivity Commission proposal, large companies that earn their profits from "rents", making profits using land and capital they already own, could pay more tax with a 5 per cent imposition on their cashflows on top of the existing profit tax.
On the other hand, businesses seeking to acquire new capital could deduct that cost and lower their tax bill immediately, as opposed to the current system, where they can only deduct the cost over time using a deduction for depreciation.
The commission says this would support innovation and investment because it would particularly benefit new businesses seeking to displace incumbents, as they tend to spend more on capital. It would also give companies some insurance against the risk of unsuccessful investments.
The Productivity Commission's recommendations are regarded as influential ahead of the roundtable, where chair Danielle Wood is one of four presenters alongside Ms Sathanapally, RBA governor Michele Bullock, and Treasury secretary Jenny Wilkinson.
Mr Chalmers did not indicate a view on the company tax proposal but said he welcomed its release.
"We've already got a substantial productivity agenda underway, but we're ambitious to do more where we can … The PC's work is an important input into our economic reform roundtable," he said.
The commission's report also recommended measures to shift the culture of government regulators to better consider the impact of regulations on business.
Mr Chalmers said "reducing regulatory burden" was an "important part of our productivity effort and we're working with regulators on potential reforms to be considered as part of the roundtable process".