By Katie Lahey
Business Council of Australia
The Business Council of Australia’s report highlighting Australia's growing business tax burden reveals that Australia's business competitiveness is at a crossroads.
The BCA report shows Australia now has one of the highest business tax burdens (that is, business tax raised relative to GDP) in the world, and that the business tax burden is considerably higher than in countries with far higher levels of overall taxation and spending than Australia.
Australian companies face a tax burden more than double that of their rivals in the US, almost double that of companies in Britain, higher than most of our regional competitors, and higher than all the other countries in the OECD, except for Norway and Luxembourg. Many of these countries are continuing to reform their business tax structures to further reduce the tax burden on business.
The BCA report also shows that Australia's business tax burden has increased sharply in recent years.
The BCA believes that all of this means Australia is losing ground as a competitive investment destination. It is noteworthy that Australia's share of global inward foreign direct investment has fallen from 4.1 per cent in 1990, to 2.1 per cent in 2005.
If we are serious about our future prosperity, we need to acknowledge this central issue of competitiveness.
Whatever your view of corporate profits, there should be broad agreement that Australia should not be allowed to fall behind key competitors and our economic peers in its ability to attract investment.
Arguments that the rise in the business tax burden reflects the strong growth in profits in Australia are flawed. The BCA acknowledges that this has been a contributing factor. Yet according to this year’s Federal Budget papers, the effective corporate tax rate has risen in recent years.
In addition, Treasury's own revenue experts have acknowledged that the increase in business taxes reflects more than rising corporate profits, to such an extent that they have revised the way they forecast tax revenues.
Furthermore, the point made by the BCA about Australia's business tax burden is no different to the conclusion reached in the Warburton–Hendy review prepared for the government and released earlier this year.
Strong company profits should be supported. The fact is the majority of Australians now enjoy the benefits of strong corporate profitability through direct shareholdings and via superannuation investments.
A strong, competitive and vibrant business sector underpins a healthy economy. The BCA’s overriding objective is to see this maintained so the growth and prosperity which Australia has enjoyed, can be sustained.
The BCA is not suggesting that business should not pay its fair share in tax. What the BCA is suggesting is that in designing our tax system, consideration should be given to what is happening in the rest of the world and the implications for Australia's competitiveness.
We continue to be surprised by the strength of resistance to this idea, and the implicit suggestion that companies should somehow seek to be less competitive and profitable as they compete with the world’s best.
Nobody should be in any doubt that profitable, efficient companies are best able to cope with the challenge of international expansion.
Only by having a competitive business tax system will we avoid our companies becoming branch offices of overseas businesses and attract sufficient foreign investment to maintain our prosperity.