Lowering the corporate tax rate could save Australia’s productivity: think tank
Blueprint Institute has estimated that extending the small- to medium-sized corporate tax rate to large businesses would net $4.9 billion in consumer welfare gain.
A think tank has released a paper calling for the corporate tax rate to be lowered to 25 per cent to fix the country’s dwindling productivity level.
Blueprint Institute said that reducing the corporate tax rate paid by large Australian companies would produce a $4.9 billion net consumer welfare gain at a $4.7 billion annual fiscal cost – an amount the think tank said Australia could regain through more effective resource taxes.
Behind Norway, Australia’s corporate tax rate is the least productive in the OECD. According to Blueprint Institute, it is a “significant deterrent” on foreign investment and extending the 25 per cent corporate tax paid by small to medium enterprises to large businesses would help boost innovation.
“A lower corporate tax rate will be a significant tailwind for large companies to commercialise emerging technologies,” said Blueprint Institute in its Beyond Inertia report series.
As a proportion of GDP, business investment has plummeted over the past decade, albeit with a minor post-pandemic recovery, while national savings have exceeded investment making the country a capital net exporter.
“The cost of doing business in Australia is not globally competitive,” Blueprint Institute said, adding that non-mining investment over the past two decades has mimicked the recession of the early 1990s.
“This is an extraordinary indictment on our economic health considering the decade after the global financial crisis (GFC) was mostly defined by low interest rates and high corporate profits—perfect economic conditions for business investment,” it said.
“And even though the GFC made it harder for Australia to implement serious tax reform, we emerged practically unscathed compared to other OECD nations. The business investment slump in Australia since the early 2010s indicates a significant structural weakness in our economy which cannot be ignored.”
The core messages of the report – broaden the tax base; reduce tax system complexity; address intergenerational equity; and boost productivity – will sound familiar to most Australians in the wake of the federal budget.
In calling for a broader tax base, Blueprint teased an annual tax on the unimproved value of land, a natural resource-based sovereign wealth fund for renewable energy investments, a broader GST base and GST to be lifted to 15 per cent.
Should the ACT’s land tax rate be applied to all Australian jurisdictions, an additional $27 billion would be raised per year, Blueprint Institute said.
Allegra Spender MP, in a supplementary report attached to the government's inquiry into competition and economic dynamism similarly called for a federally supported state transition from stamp duty to land tax.
Commonwealth Treasury estimated that stamp duty imposes a marginal cost of approximately 70 cents per dollar of revenue raised, while a land tax would impose a marginal economic benefit of 10 cents per dollar raised.
Blueprint Institute said: “A broad-based, uniform annual tax on the unimproved value of land is also an easy win from an efficiency perspective. The fundamentals of land—immobility, fixed supply, and not a function of individual labour—ensure there are few distortionary effects anticipated when taxing the unimproved value of land.”
The Institute also called for a repeal of the new GST distribution system, which introduced a floor on the minimum state or territory entitlements.
Under the new deal, Western Australia is expected to receive an additional $20 to $30 billion in distributions by 2030, despite its repeated budget surpluses.
It also called for an end to payroll taxes, mimicking similar calls from Business NSW, and an indexation of income tax brackets to overcome bracket creep.
“Indexing income tax brackets to inflation would be a two-fold improvement for tax reform in Australia. It would remove bracket-creep-induced tax cuts as the convenient and uncontroversial political win and would reduce our dependence on income tax at the margin—forcing the Government to recover forgone revenue with more ambitious, wholesale reform,” it said.
“We rang in the new year with an all-too-familiar song and dance about income tax—where bracket creep has become the most convenient can to kick down the road. Although Labor's adjustments to the Stage 3 tax cuts are intended to reflect cost-of-living pressures, ambition to advance wholesale tax reform is still found wanting.”
