First published in The Australian, 8 August 2013
Tuesday’s interest rate cut by the Reserve Bank of Australia was confirmation that business confidence remains troublingly low. The Federal Opposition’s announcement of a company tax rate cut is a genuine initiative to boost business confidence. When business is confident, jobs are created.
CPA Australia has been one of the most vocal and persistent advocates for a cut to Australia’s company tax rate. There is clear evidence that reducing the tax burden on businesses increases their productivity, improves their competitiveness and lifts their ability to expand and create jobs. Despite it seeming counterintuitive, cutting the company tax rate and the resultant boost to business activity may result in more government revenue - not less.
As recently established by the Business Tax Working Group, a one per cent cut in the company tax rate would increase GDP by around $3 billion, lift wages by 0.2 per cent and add around 10,000 jobs.
These scenarios have been modelled by Treasury, widely consulted and subjected to detailed scrutiny for many years. The Henry Tax Review back in 2010 recommended a cut. There is near universal agreement that it is a good idea, on both sides of politics.
The Labor Government has supported it, with then Prime Minister Julia Gillard telling a business gathering in 2012 “we've heard you loud and clear on the company tax rate and we see it as a priority for the next steps in tax reform”
Kevin Rudd too, when he was Prime Minister in 2010 said “a phased cut in the company tax rate to 28 per cent will assist the competitiveness of all Australian industries.” He went on to promise to bring down the rate “which is already too high against international standards.”
Since November 2011 we have had eight successive cuts to official interest rates in attempt to boost economic activity, to stimulate a slowing and sluggish economy and to boost business confidence. The government’s official Economic Statement, released last week, painted a sobering picture of slowing growth, increasing debt and rising unemployment, all of which means the cycle of rate cuts has likely not yet concluded.
For all the reasons identified, and placed on the public record by the current government, a cut to the company tax rate has been both justified and required. Yet it has not been implemented.
The Opposition’s commitment is what business has been crying out for. It is a positive first step and a signal to business that the Coalition has been listening – and is prepared to act.
Prime Minister Rudd was correct when he said a lower company tax rate will boost the competitiveness of all Australian industries. This is critical as we transition to a knowledge based economy and find our place in the Asian Century. Yet this government’s response to tax reform, subsequent to the much-vaunted Henry report, which was commissioned by Prime Minister Rudd, has been to ignore the recommended ‘less is more’ approach and to impose further taxes and levies on business. As I think back to the way in which the Henry report was released, slipped out quietly on a weekend, it explains a lot about the government’s intent and resolve in relation to meaningful tax reform.
We know the China resources boom is over. Business also knows that the challenges and opportunities reflected in that simple statement will not be met by increased cigarette taxes and new bank levies but by true reform that addresses the barriers and restrictions faced by Australian business.
Complacency, borne of the historical profitability of our mining and resources sector, has seen our government shy away from some essential structural reforms. Acknowledging the benefits of a company tax rate cut and not doing anything about it while watching businesses struggle is evidence of a lack of action.
The business community is looking to our political leaders to be frank about our challenges so they can articulate a credible vision for the future. It is not a given that the Asian Century will be the Australasian Century. To ensure that it is, competitiveness needs to be front and centre of every policy, every time, throughout the election campaign. We welcome the Coalition’s announcement to cut the company tax rate. It’s about competitiveness and it’s about jobs – and that’s everything that matters to our next generations.
Alex Malley is Chief Executive of CPA Australia