Rethink on business tax plan after lobbyist backlash

Big corporations would get an income tax cut but could still end up paying more under a revised plan that follows a business lobby revolt. The government's economic think tank, the Productivity Commission, on Friday released the five final reports from its inquiry into Australia's stalled productivity growth. The main change from the commission's draft reports, released ahead of Treasurer Jim Chalmers' economic reform roundtable in August, was to lower the income tax rate for big firms from 30 to 28 per cent as part of the controversial proposals. Along with cutting income tax for smaller firms from 25 to 20 per cent, a five per cent net cashflow tax would allow businesses to instantly deduct capital spending, encouraging companies to invest more in equipment. But lobby groups representing employers large and small, including the Business Council of Australia and the Council of Small Business Organisations Australia, unanimously slammed the commission's initial proposal. Originally, the Productivity Commission recommended keeping the large business tax rate at 30 per cent, meaning firms with a turnover of more than $1 billion would face an effective tax rate of 35 per cent. Raising the large business tax rate and adding complexity to the tax system would damage investment, lower GDP and ultimately raise costs for Australian consumers, Business Council chief executive Bran Black said in a submission. The Productivity Commission said its amended proposal to lower the income tax rate to 28 per cent would increase GDP by $13 billion, or 0.7 per cent, and boost labour productivity by 0.5 per cent, while not worsening the budget bottom line. "Having modelled and refined this proposal further since our interim report, we are confident it is the best revenue-neutral option for improving investment," commission deputy chair Alex Robson said. "We have also modelled and explored alternative corporate tax reforms that would boost investment but come at a cost to the budget if not paired with other revenue measures." Compared to the initial proposal, fewer companies would pay more tax than they currently do. The new proposal would make the effective tax rate for the largest firms range from 26.7 to 31.6 per cent, depending on their investment activity. Companies with a turnover of $50 million to $1 billion, which currently face a tax rate of 30 per cent, would see the biggest benefit, with their effective combined tax rate lowered to 19 to 24 per cent. The report also urged the federal government to make regulatory reform a key priority. Recommendations from the commission's other four reports include improving teaching resources to boost skills, incentivising adoption of AI, introducing a national emissions reduction policy and greater investment in prevention to reduce spending in the care economy. Productivity Commission chair Danielle Wood said the nation's productivity growth had stalled since 2016 and it needed to get moving to "ensure future generations can live better and more prosperous lives than those that came before them". "Our final suite of recommendations, if fully implemented, would add billions to the economy, benefiting workers, households and businesses today and into the future," she said. The treasurer said the government would take time to properly consider the reports in the lead-up to the next budget. "We might not be able to run with everything, but we will consider all of it and see what we can progress," Dr Chalmers said.