PWC: Cutting the corporate tax rate to 25 per cent will pay for itself in 5 years

Lowering the company tax rate has become a beckon for those elements of government and business who believe it can help make the Australian business sector more competitive while at the same time increasing employment.

For those who advocate such a cut, it’s seen as a win-win for the corporate sector and the economy as a whole.

But it’s also likely to be a much harder sell politically given such a cut would appear to favour business over personal income tax payers where, in the 2015-16 tax year, it takes just $37,001 of employment income for a personal tax payer to jump to a marginal tax rate of 32.5%.

But against this backdrop, Big 4 accounting firm PwC has released a new report saying that a drop in the corporate tax rate from the current 30 per cent to 25 per cent would pay its own way in five years.

The AFR reports this morning that PwC modeling suggests a $291 billion growth boon from such a cut with GDP $100 billion higher than otherwise would be the case by 20125.

Tom Seymour, the managing partner of PwC’s Tax and Legal unit said the most important purpose of major tax reform was “to encourage long-term economic growth that benefits all Australians”.

“One of the best levers as part of a package of reforms is to cut our high company tax rate to attract more capital, increase productivity and lift incomes, which in turn generates more government revenues,” Seymour added.

If you are wondering how a lower corporate tax rate benefits all Australians, particularly workers, the theory goes that because companies pay less tax, they’ll be able to pay higher wages and employ more people.

Indeed, Mr Seymour said:

“Reducing the company tax rate is a carrot to entice jobs and investment to come to Australia.”

You can read more here.

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