Businesses urge Treasurer to follow through on tax incentives hints
Treasurer Jim Chalmers has ruled out company tax cuts, but businesses are pushing him to act on suggestions that additional tax incentives could be on the horizon.
The Business Council of Australia (BCA) has urged Treasurer Jim Chalmers to complement his foreign investment framework overhaul with further tax incentives for investment.
Chalmers teased the prospect of tax incentives in an address on Wednesday to the Lowy Institute, claiming the budget will place a “big emphasis” on attracting private investment through “financial incentives, regulatory changes, and other enablers.”
Last month, Chalmers vetoed a cut to the company tax rate in deference to a more targeted tax review, approaching the tax system as “one of a whole range of levers.”
Small Australian businesses are subject to a company tax rate of 25 per cent while larger businesses pay a flat rate of 30 per cent.
Business Council chief executive, Bran Black, welcomed the government’s foreign investment changes, though he urged the Treasurer to “go further,” including by introducing tax incentives for businesses, implementing a whole-of-government investment strategy, and providing a single “front door” for investors.
“When I talk to CEOs and directors, their number one concern is that Australia is not competitive enough to win investment opportunities from other countries,” said Black.
“With economic growth slowing and productivity lagging, it is more important than ever to ensure Australia isn’t overlooked as an investment destination because that will cost jobs and opportunities for Australians.”
The Labor government rode the promise of a business tax write-off to victory in the 2019 election on the basis it would be more flexible and targeted than a broad company tax cut.
Mark Molesworth, tax partner at BDO Australia, said accelerated tax breaks alone will fail to move the needle on business investments and new forms of tax deductions are needed.
“Accelerated deductions, like an asset write-off scheme, are not really going to incentivise a business to invest in something it otherwise wouldn’t,” said Molesworth.
“Additional tax deductions, however, would encourage businesses to invest in purchasing new equipment and potentially increase productivity.”
Under the government’s proposed rewording of the foreign investment framework, overseas investors with a proven record of investing in Australia will get a fast-tracked approvals process.
The reform also includes new incentives for early investment applications, fee refunds for unsuccessful tender bids, cutting red tape in the form of regulatory duplication, and easing reviews of investments deemed to be low-risk.
Black said the fast-tracking of approvals for companies with proven track records was common sense, but that underlying economic issues still needed to be addressed.
“If we want to shift the dial and make Australia an attractive investment destination, we must get our settings on the fundamentals right. That includes our industrial relations, tax system, planning and regulatory settings,” he said.
“These are the settings that really count when it comes to having boards approve major new investments.”
Molesworth, too, said that the country’s tax system needs more than a few tweaks, hinting that a comprehensive review is warranted.
“It is a failure of our politicians to pick up the big picture challenges when it comes to the tax system,” he said.
“Tax reform requires more than just the tinkering of tax thresholds and rates. We hope politicians of all political persuasions will be willing to commit to real reform of our tax mix if they are serious about securing our economic future.”
The case for a comprehensive tax review has been building in recent years, with former Treasury secretary Ken Henry at the helm.
The brunt of Henry’s case is that Australia’s short-term tax thinking which, he said, has put excess pressure on younger Australians to fund the growing cost of public expenditure relative to GDP is an “intergenerational tragedy” in the making.
Former economic policy adviser to the Australian government Paul Tilley’s diagnosis is somewhat milder than Henry’s, though he recently told Accounting Times that a comprehensive review would be “ideal.”
