This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia was published in The Daily Telegraph on 11 April 2016.
As the countdown begins in earnest for the 2016 Rio Olympic Games, public debate is intensifying about how Australia’s athletes will fare on the world stage.
Will we reverse the trend in our medal haul, declining since Sydney in 2000? Could Australia even claw its way back into fifth spot on the medal tally, after finishing tenth in London three years ago?
As a nation of unabashed sports lovers, this is serious stuff. But at a time of intense global change, shouldn’t we take Australia’s economic competitiveness just as seriously?
Consider this: last year, Australia’s largest biotech company, CSL, unveiled its chosen location for a new $500 million manufacturing plant, which would ultimately employ about 500 people.
The company had spent 18 months researching where to make this enormous investment – and had included Australia in all its considerations. But Australia’s company income tax rate of 30 per cent was always going to be a handicap when compared to other countries competing for the same business.
Ultimately, CSL chose to build its plant in Switzerland, not least because the company tax rate it faced in that European country was just 18 per cent.
As a result, Australia lost not only $500 million in investment in exactly the sort of innovative industry we should be growing and supporting – but 500 new jobs in a high-tech workplace with a promising future.
Surely that sort of loss should sting just as much as loss in the pool or running track in Rio?
The harsh truth is that Australia’s global economic competitiveness ranking has fallen from tenth a decade ago to 21st, behind New Zealand.
Our 30 per cent company income tax rate is five percentage points higher than the average OECD rate. Against some of our nearest neighbours and strongest economic rivals in Asia, that disparity is even more stark, with Australia’s rate seven percentage points higher on average.
There’s much more than just national pride at stake.
Right now, Australians are currently living through a time of historic transformational change. Our national economy is transitioning from the mining boom and investment is needed in new and traditional sectors alike to build a resilient economic base and provide attractive jobs. Meanwhile, we are competing within a highly volatile international market.
To maintain Australia’s world-renowned and envied standard of living, we must do more than simply weather the changes going on around us. We must embrace them.
One important way of doing so is to unburden Australian businesses so that they can compete at their best on the world stage. A cut in Australia’s company tax rate to internationally competitive levels would allow our world-class Australian innovators and entrepreneurs to do that.
It would encourage investment, fuel economic growth and, importantly, help create jobs in the modern economy.
Indeed, conservative estimates indicate a reduction in the company tax rate to 25 per cent could increase annual economic growth by 0.5 per cent or around $9 billion over time and annual wage income by around $4 billion. This is equivalent to around 50,000 full-time jobs paying average earnings.
This is not just the view of the Business Council. While the details may differ regarding timing and rates, the overall case for a company income tax cut has been supported by the federal Treasury, the past two Treasury secretaries, and a host of independent economists.
The point about lower company income tax contributing to growth is important – tax reform should not be about raising the overall tax burden to support growing government spending, but about helping the economy to grow faster, which leads to greater revenue over time.
Lower company income tax helps the economy grow faster because it gives businesses the capacity to invest in expanding their business, using technology or new equipment to be more productive, and to hire more workers.
As Australian sports fans know, the risk of doing nothing when other countries are acting to improve their performance is not that we will simply maintain the status quo. It is that we will go backwards.
To improve our performance – in economic growth and job creation – Australia needs a company tax cut now.