Treasurer Scott Morrison has confirmed that company tax cuts will be his priority in the federal budget.
Earlier in the month the Turnbull government flagged that it was considering reducing company tax gradually, funding it through other tax savings such as limits on the use of negative gearing and superannuation concessions, and longer-term spending cuts.
Such a move would take several years — perhaps up to a decade — and would involve setting a future target rate and cutting gradually over successive budgets.
Australia’s company tax rate is 30% and 28.5% for small businesses. The headline rate has been static for years, while other OECD nations have been reducing theirs.
The Business Council of Australia has proposed lowering this rate to 25% over five years to 2020, saying it would be legislated “to provide investors with confidence to invest, while also providing an early signal to help lock in future growth”.
It estimated such a cut would boost the economy by at least 0.5%, or $9 billion.
According to the Australian Financial Review, Morrison this week hinted that the government would go in different direction to its initial plans for cuts to income tax.
He said the best way to deal with the burdens of higher rates of income tax is to grow the economy.
“That’s the way you do it and that’s what this government is seeking to do,” Morrison said. “We’ll focus our changes on things that will drive investment, as we’ve considered many tax measures over the course of the past six months.”
The plan is similar to the approach taken by the Cameron government in the UK, which reduced the corporate tax rate from 28% to 20% over the life of the previous parliament. Last year, chancellor George Osborne announced further plans to cut the rate to 18 per cent by 2020, with an interim cut to come in 2017. This would give the UK the lowest corporate tax rate in the G20. Read more on that here.