Australia could follow David Cameron's path of gradual company tax cuts over years to come

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The Turnbull government is considering a plan for a gradual reduction in the company tax over several years – perhaps up to a decade – that would involve setting a future target rate and cutting gradually over successive budgets.

Federal treasurer Scott Morrison has started talking about “going the long road” on tax reform since it became clear prime minister Malcolm Turnbull was unconvinced about the economic benefits of the more dramatic option of an increase in GST accompanied by significant income and company tax cuts.

This morning the AFR reports the Turnbull government is now considering a promise to reduce 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.

Australia’s company tax rate is currently 30% and 28.5% for small businesses. The headline rate has been static for years, while other OECD nations have been reducing their taxation rates.

Australia’s company tax rate has slowly become less competitive.

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.

The British economy has seen a strong recovery from the GFC, growing 3% through 2014, although that rate appears to be slowing now amid a broader global slowdown.

Turnbull has said that the “first test” of any proposed change to the tax system is that it should help to boost the economy. One benefit of a longer-term goal is that it can provide certainty for business on future reductions in their tax bill, creating an incentive for investment.

The government is reportedly likely to release treasury modelling soon which shows a GST increase with income and company tax cuts would only have limited economic benefits.

The PM has signalled that the federal budget in May will contain taxation reform proposals which will then be taken to an election.

There’s more at the Fin >>

NOW READ: We finally know what it will take for Malcolm Turnbull to back an increase in the GST

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