Australia’s corporate tax regime was quickly becoming uncompetitive and would act as a brake on economic growth if it was not brought into line with its competitors, according to the new report released by the Business Council today.
The BCA’s Corporate Taxation: An International Comparison compared the overall tax burden on companies in Australia with all its major competitors such as major trading partners, countries which are key sources of foreign direct investment, other Asia–Pacific economies, the European Union and OECD economies.
It concluded that Australia had the highest corporate tax burden across every relevant global comparison.
Australia’s headline corporate tax rate of 30 per cent is often used by business and government as a leading indicator of tax competitiveness. However, as the report argues, the total tax burden on companies is the more important indictor of Australia’s competitiveness because it reflects the total tax take extracted from companies’ balance sheets.
The report found that Australia’s competitiveness measured using the headline corporate rate was deteriorating and that Australia’s overall tax burden on companies was significantly higher than every other country bar Norway and Luxembourg.
Australia’s high overall tax level is substantially due to government levying a broader base of taxes on Australian companies, with fewer concessions than that offered in other countries.
BCA President Mr Hugh Morgan said the report was not intended to talk down Australia’s economic strengths or ignore the significant improvements put in place in recent years to the competitiveness of Australia’s economy.
The report explored some common assertions as to why the company tax burden is so high compared to other economies. It discounts assertions such as that the current surge in company profits or a strong economy resulting in companies no longer having losses to facilitate tax reductions are the key reasons behind Australia’s uniquely high tax burden.
“There has been a steady increase in Australia’s corporate tax burden over the last twenty years and it is a misconception that our high tax burden is the result of factors such as the recent resources boom,” Mr Morgan said.
The survey, which will be conducted by the BCA annually, was intended to educate politicians, policy makers and business itself on the competitiveness of Australia’s corporate tax regime.
It will serve to raise awareness of the importance of the issue which is crucial for Australia’s future, demonstrating the increasing pace at which changes to corporate tax structures are occurring globally, and providing the basis for a detailed analysis by government.
“Too often, the debate about corporate taxes is seen in isolation from the income tax debate, or is framed around the narrow definition of competitiveness being equal to only the country’s headline company rate,” Mr Morgan said.
‘The fact is that governments across the world are in competition with each other for investment flows. Many are now aggressively structuring their corporate tax regimes to attract a bigger share of investment, jobs and innovation, all of which are important sources of economic growth.”
“In an internationally competitive world Australia must do the same, but first we need a better understanding of how we compare, what other countries are doing and what its implications are for our future.”
The report argues that corporate tax competitiveness is not just an economic or business issue, but one of importance to the wider community.
The current corporate tax take of $48 billion a year, up from $25 billion in 2001–02, means that Australia’s ability to fund new services, programs and future income tax cuts was directly linked to its ability to secure and maintain new sources of business investment.
“The fact that corporate taxation is now the fastest growing source of government revenue underlines the importance of Australia’s current strengths in offering an overall competitive business environment,” Mr Morgan said.
“Yet if our company tax regime becomes too uncompetitive, investment and growth will erode. This in turn will have a direct impact on government revenues and the country’s capacity to provide the services and standard of living we currently enjoy.
“Therefore it is in everyone’s interest to understand and participate in this debate from an informed position.”
In April this year, the BCA released its Taxation Action Plan for Future Prosperity, which canvassed a range of changes to Australia’s tax system, including both personal and corporate tax systems to make sure it remained competitive and sustained, rather than restrained, future economic growth.
As part of the action plan, the BCA called for a review into the competitiveness of Australia’s corporate tax regime prior to the forthcoming 2006–07 Budget. The BCA is continuing to lobby government for a review.