Top executives wary of tax cut costs
But the powerful peak business lobby wants the company tax rate to be cut further, bringing Australia in line with the average of many developed economies.
Mr Abbott outlined plans on Wednesday to lower the company tax rate to 28.5 per cent, from 30 per cent. He promised the scheme, which would cost $5 billion, would be introduced within two years if the Coalition wins the election.
In 2010, the Henry Tax Review recommended cutting the tax rate to 25 per cent "over the short to medium term, as fiscal and economic circumstances permit".
But it also recommended a broad-based resource rent tax at the same time, given corporate taxes act like a tax on profits derived from Australia's non-renewable resources.
BHP Billiton CEO Andrew Mackenzie declined to be drawn on the level of the proposed cuts, but said tax should be considered as part of a broader issue of competitiveness.
"Tax is one of many issues we need to talk about to encourage Australia's competitiveness and productivity and we need to work that through ... with whoever wins the next election," he said.
But Roger Corbett, Fairfax chairman questioned whether the federal budget was in a position to pay for the cuts.
"We want to introduce a disability scheme, we want to introduce a maternity scheme ... so when we hear of company tax being reduced, Australia needs more revenue, not less," he said.
The Business Council of Australia - which is comprised of the CEOs of 100 of the largest corporations operating in Australia - says the plan would send "important signals that will boost business confidence" and help to boost jobs and investment.
But it also reminded the government that it would like the tax cut further. "The BCA has called for lowering the company tax rate down to 25 per cent as a priority, but only when fiscal circumstances permit to make Australia's system more internationally competitive," BCA president Tony Shepherd said.
Mr Shepherd also remained concerned about the Coalition's paid parental leave scheme, the $4.3 billion cost of which will be borne by the country's biggest companies.
"While most businesses will benefit from the tax cut when it takes effect on July 1, 2015, 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."
Heather Ridout, a board member of the Reserve Bank and also a member of the Henry Tax Review panel, said lower corporate taxes help attract investment.
"This is the Henry argument, we needed to make it much more attractive for overseas investment to come into the industries that were being punished by a dollar at parity.
"The gains from corporate tax reduction are much more for bigger companies, and particularly for foreign-owned ones."
Global corporate tax rates
US 40%
Japan 38
France 33.3
Australia 30
Germany 29.5
New Zealand 28
Canada 26
China 25
UK 24
Ireland 12.5
SOURCE: KPMG
Frequently Asked Questions about this Article…
Tony Abbott proposed lowering Australia's company tax rate from 30% to 28.5%. The plan was estimated to cost about $5 billion and, according to the article, would be introduced within two years if the Coalition won the election; the article also notes the cut was expected to take effect on July 1, 2015.
A lower company tax rate can boost business confidence, jobs and investment, which may support company profits and share prices—benefits highlighted by the Business Council of Australia. However, some executives warn the gains tend to flow more to larger and foreign-owned companies, and budget pressures from lost revenue could affect government spending priorities that also influence the economy.
According to the article, the biggest beneficiaries would generally be larger companies and particularly foreign-owned firms. The Henry Tax Review and Reserve Bank board member commentary also suggest sectors exposed to international competition and resource industries could see stronger effects from a lower corporate tax rate.
Some business leaders expressed concern about the fiscal cost. The proposed cut was estimated at $5 billion, and Fairfax chairman Roger Corbett questioned whether the budget could afford that reduction while funding new initiatives such as disability and maternity schemes. The Business Council of Australia says cuts should occur only when fiscal circumstances permit.
The Coalition's paid parental leave scheme was estimated to cost $4.3 billion and, according to Business Council of Australia commentary in the article, would be financed by a 1.5% levy on Australia’s largest companies. That levy could offset some of the benefits larger businesses receive from a company tax cut.
The Henry Tax Review recommended reducing the company tax rate to 25% 'over the short to medium term, as fiscal and economic circumstances permit.' It also recommended introducing a broad-based resource rent tax at the same time, noting that corporate taxes can act like a tax on profits from non-renewable resources.
The article cites global corporate tax rates (source KPMG): US 40%, Japan 38%, France 33.3%, Australia 30%, Germany 29.5%, New Zealand 28%, Canada 26%, China 25%, UK 24%, and Ireland 12.5%. The Business Council of Australia argues a lower rate would help make Australia more internationally competitive.
BHP Billiton CEO Andrew Mackenzie declined to specify a preferred rate but said tax policy should be considered as part of wider competitiveness and productivity discussions. The Business Council of Australia said the cut would send important signals to boost business confidence, jobs and investment, but it also wants the company tax rate lowered further to 25% when fiscal circumstances permit.
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