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Published 07 August 2013 11:52, Updated 26 November 2013 18:35
Tony Abbott and Joe Hockey have made their most expensive election promise yet. Photo: Andrew Meares
Business and tax groups have welcomed Tony Abbott’s promise to slash the company tax rate to 28.5 per cent, but concerns remain over how the cut, which offsets an earlier proposed hike in company tax to pay for his paid parental leave scheme, will now be funded.
In his biggest and most expensive election promise yet, Abbott has moved to lock down the business vote, pledging to cut company tax by 1.5 percentage points for 750,000 companies at a cost of $5 billion.
The proposed cut, to be introduced from July 2015, will help offset his paid parental leave scheme that is being funded by a 1.5 per cent levy on 3200 big companies. Further details of the policy and how it will be funded will be unveiled in Adelaide today.
Last night’s confirmation of a cut follows on from an interview with BRW last month where Abbott promised “the paid parental leave levy will be accompanied by a modest tax cut so there will be no net increase in tax”.
He last night said the “tax cut will boost jobs and strengthen the economy”.
“Labor has talked and talked about cutting the company tax rate,” he said. “We will actually do it.”
ACCI chief executive Peter Anderson welcomed the cuts, saying it will help small and medium businesses, but says it needs to be cut by 5 per cent over the long term. He also says the current 1.5 per cent cut needs to be “fully funded” so the budget can return to surplus.
“Our caveat to the Coalition announcement is two-fold. Additional measures to support micro businesses that often trade as partnerships or unincorporated sole traders and pay income rather than company tax are needed. And for the very large businesses, this looks like an offsetting tax cut to the Coalition proposals to fund its paid parental leave scheme by a company tax rise of equal magnitude. We don’t agree with that approach and consider it to be an excessive parental leave scheme.”
The Institute of Chartered Accountants Australia chief executive Lee White says a reduction in the company tax rate will boost productivity but that the long-term aim should be to cut the rate to 20 per cent.
Abbott’s proposed cut will take the corporate tax rate to 28.5 per cent – still above the average of OECD countries of 24 per cent.
“All major political parties should have a long-term plan to reduce the company tax rate as part of a more balanced and sustainable tax system,” White says. “In the medium term, we would like to see a further reduction to 25 per cent, with the ultimate goal being a company tax rate of 20 per cent in the longer term.”
Clayton Utz partner Niv Tadmore says the cut will help stimulate greater activity and investment. “A reduction in the company tax rate can in fact result in additional tax revenue, and there are examples around the world to support that,” he says.
CPA Australia’s head of business and investment policy, Paul Drum, says the cut will benefit more than 700,000 companies. “It’s encouraging this is on the table especially since it’s only 12 months ago a corporate tax review was undertaken and with a nil result,” he says.
Business Council of Australia president Tony Shepherd also welcomes the move, saying it will boost confidence and jobs. But he cautioned “the fact that Australia’s larger businesses will be required to pay a 1.5 per cent levy to fund the Coalition’s paid parental leave scheme remains a concern”.
Abbott told BRW last month that in regards to having GST as part of the debate on tax reform, “We have no plans to change the GST, but we’re not ruling things in or out prior to the process.”
The Tax Institute’s senior tax counsel Rob Jeremenko says there needs to be a “mature debate” on tax reform. “Such a debate is impossible without considering the role of the GST in replacing current inefficient state taxes and other much-needed reforms,” he says.
This view is echoed by BDO’s national tax director Lance Cunningham. He says while the proposal to reduce company tax is welcome, “there is a concern that this is another bit of tinkering at the edges of tax reform”.
“We would prefer to see the company tax rate being considered as part of an all-encompassing review of the Australian tax system that covers all federal and state taxes.”
Drum does not believe the government will raise the GST to pay for the company tax cut, but says GST could be part of a wider discussion on tax reform.
Despite media reports suggesting the Coalition may look at raising the GST, shadow treasurer Joe Hockey today put out a statement denying it.
“Contrary to reports that a Coalition government will increase the goods and services tax, the Coalition has no plans whatsoever to change the GST,” Hockey said. “We have said this many times.”
It says the headline in The Australian Financial Review was “misleading” and that “the GST can’t be changed without the consent of every single state and territory, including the Labor-run states”.
“We are prepared to have a debate about tax reform but any changes arising out of the white paper process would first be put to the Australian people at the next election,” he said.
Drum says it’s more likely that GST will be included as part of the tax white paper to be delivered within the Coalition’s first two years if it wins government on September 7. “We think cuts will come from other areas of spending,” Drum says.
He also believes there should be further cuts in the company tax rate down the track. “We should be aiming for a lower rate,” he says. “We should set 25 per cent rate as a future target. It is required if we want to remain competitive in the Asian century.”
Institute of Public Accountants chief executive Andrew Conway says based on current newspaper reports of the planned cut for 750,000 companies, it will help small and medium companies and stimulate economic activity.
“Stimulating the SME sector in Australia through a tax cut means those businesses will have a much greater capacity to employ more staff and grow their businesses,” he says. “It really is a win-win which has been supported and validated by senior economic thinkers such as Dr Ken Henry in the Henry Review of taxation.”
Regarding the GST, he says: “The IPA calls for a mature debate, removed from blinkered political ideology.”
“It should be possible, in a modern developed democracy, to advocate for a robust mature discussion on the breadth and rate of a consumption tax without being labelled a radical,” he says.
Australia’s current tax base cannot cope with demands placed on the government by an ageing population.
Jeremenko says the company tax rate cut will be neutral to big business and “a real reduction for companies earning less than $5 million”.
“Reducing the burden of company tax for small and medium business will encourage innovation and entrepreneurship,” he says.
Greens to cut company tax for small business
Despite the Greens knocking back Labor’s proposed company tax cuts last year (Labor dumped a promised 1.5 per cent cut to the tax rate in last year’s federal budget after the Greens and Coalition refused to agree to it), the Australian Greens have now agreed to reduce the company tax rate for small business by 2 per cent, starting on July 1 next year. It will cost $1.75 billion over four years.
“Of the 788,000 companies in Australia, 600,000 small business companies will benefit from our policy,” Greens leader Christine Milne said in a statement
“A lower rate for small business is perfectly feasible. In countries like Belgium, Canada, France, Japan, the Netherlands, South Korea, Spain, UK and the United States, small business has a lower tax rate than big business.”