Australia’s company tax rate highest in the world? Not really

By Leith van Onselen

Always the corporate mouth piece, The Australian’s David Uren has penned an article today claiming that Australia’s corporate tax rate will soon be the highest in the world:

US company tax cuts will accelerate the slide in global business tax rates, ­leaving Australia stranded with the highest company rate in the advanced world and losing foreign investment.

France and Belgium are the only other advanced countries with higher company rates than Australia and both have ­announced major tax cuts.

With Labor and crossbenchers blocking the government’s plan to cut Australia’s rate to 25 per cent in a decade, the current 30 per cent rate would be exceeded only by Argentina and Brazil.

The average company tax rate in advanced countries has fallen from 32 per cent in 2000 to 24 per cent today, and Treasury’s analysis shows it will fall significantly further if the US federal company tax rate is slashed as planned.

Australia’s company tax rate was cut from 36 per cent to 30 per cent by the Howard government in 2000 and has not been moved since. Treasury analysis shows ­business investment will suffer as global companies divert investment to take advantage of the US rate, which would move from being five percentage points ­higher than Australia’s current rate to 10 percentage points below it…

Labor finance spokesman Jim Chalmers and assistant Treasury spokesman Andrew Leigh yesterday dismissed the study, saying it was “yet another laughable ­attempt from the Liberals to justify tax giveaways for multi­nationals while jacking up income tax for workers”…

Scott Morrison said Australia was at risk of being “potentially marooned on our own tax island” with a permanent reduction in GDP and real wages, unless steps were taken to maintain competitiveness…

Business Council of Australia chief executive Jennifer Westacott said the global action on tax rates should be a “wake-up call” to political leaders.

“Those who oppose the case for company tax cuts have no credible alternative to get investment growing strongly again,” Ms Westacott said.

“While other countries have reduced company taxes to boost their competitiveness, Australia’s company tax rate has been frozen in time for 16 years.”

Of course, Uren could have pointed out that Australia’s average and effective corporate tax rate are actually fairly low by advanced economy standards:

Or that the Australian Treasury’s 2016 modelling on company tax cuts showed minuscule benefits for either jobs or growth. And that the Australian Treasury in 2016 estimated that the full company tax cut package would cost the Budget some $8 billion a year, which would need to be recouped by raising personal income taxes, cutting government investment in infrastructure, or slashing welfare expenditure – each of which would necessarily reduce jobs and growth.

And therein lies the key problem with the Turnbull Government’s company tax cut plan. The benefits are vague and uncertain, whereas the costs to the Budget are real and will need to be made up elsewhere.

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    • I think it’s the North Korean model, the more pro Government you are, the more benefits that will likely flow your way.

  1. With a bit of creative accounting, profits can easily be shifted and tax rates lowered. Paying tax is for the poor and middle class who can’t afford a decent tax structure.

    Take from hundreds of examples in the news:
    “An investigation of nine years of financial statements by Sanofi-Aventis Australia Pty Ltd, has found the company paid income tax of just $106.5 million on revenues of $7.5 billion, just 1.4%

      • Sadly the middle class pay 30 to 40 % tax, and might get back 5% in family benefits, etc. Maybe 30 K of tax max.
        The top 5%pay 10 %, after deducting negaitive gearing 4 houses, family trust, FBT car rort for the Luxury SUV. The rich retired dont pay anything if they have a good accountant, and super.

    • You just do not get it. This company operates in Oz for the main purpose of undertaking a social welfare role. Since its basically a non-profit operation there is very little income to be taxed. The large revenue of over $7b relative to tax paid is being misunderstood by you as implying a significant profit margin exists when in fact there is next to no profit. I expect the Lib/lab govts to work towards remedying this defect over the next 5 years, after first properly informing the public of the benefits and great need for this measure to be implemented.

      The French love us, that is why their company is undertaking social welfare activities in Oz. Most foreign companies are doing us a favour by buying up our assets and running welfare-type operations with next to no taxable income here.

      We should be grateful to them as they keep costs down so we can benefit from their products.

      Any tax deficiencies is purely due to our own stupidities and the failure to raise the GST to 20-25%. Unfortunately the outdated promise by Howard to restrict the GST to 10% is holding us back from introducing an efficient world class GST system of 25%.

      • Sorry jkambah, To start with I thought you were serious and I was thinking “who is this ******* idiot,” it took me till the 2nd para to realise you were being sarcastic. I was the dumb ******* idiot! Now I find it funny.

      • Dennis

        You got it right. I was being sarcastic.

        I think my comments about introducing a 25% GST (which is what the media has been trying to soften us up for, well perhaps they are only looking for a rise to 20% initially) may have confused a bit. I intended to add a bit more sarcasm on that issue as what I wrote makes it look as if I support such a measure, which I do not. I want the govt to go after the companies to get whatever tax has been evaded (even if that means retrospective legislation) and I want to see an end to interest payments being tax deductible for foreign owned/controlled companies.

  2. Other nations have import taxes to collect revenue. Even the EU puts a 10% import tax on cars.

    Australia has signed unilateral free trade agreements to ensure that nothing is produced here.

  3. Its fairly irrelevant what the tax rate is when the local tax regime is being blatantly bypassed anyway.

    How about we get a better legal and regulatory framework for tax collection before we listen to whingeing about the tax rate being too high?

  4. kiwikarynMEMBER

    The average tax rate quoted is not the average tax rate that Australian companies pay in Australia, its the average tax rate US companies pay in Australia. I’m not sure the two are equivalent what with all the jiggery pokery that goes on in terms of foreign companies structuring their tax affairs to minimise taxable income, and Govt tax incentives and subsidies paid to foreign companies like the car manufacturers.

    “The average corporate tax rate is the total amount of corporate income taxes that companies pay relative to their income. In G20 countries other than the United States, those are the rates that U.S.-owned foreign companies faced, by country of incorporation. They reflected total worldwide income and corporate taxes paid to all countries in which that income was taxable. The U.S. average rate is shown for foreign-owned companies incorporated in the United States. It is based on income those companies earned in the United States and on U.S. corporate taxes.”

  5. This is why I like GST – it’s largely unavoidable.

    Why not do away with all the other taxes and simply have a 30% GST ?

    • Wouldn’t foreign companies have ways around paying much of the GST? Plus, they make their money by selling their goods here, the GST on which is paid by the consumer.

    • Why not do away with all the other taxes and simply have a 30% GST ?

      It’s a tax increase for everyone on less than about $150k and a tax decrease for everyone on more than about $150k ?

      (Very simple maths used, that threshold number would likely be a fair bit lower.)

  6. yes but to get to that “average” 17% etc companies (etc) have to jump through Legal (and at times aggressive) tax minimization strategies (leaving aside the paradise type strategies) … great for the tax industry not so great for all else. I favour much lower tax rates for all entities/ businesses which takes the incentive out of tax structuring and if coupled with investment incentives for businesses to locate in Australia etc …. well just my view

  7. Not sure why the LNP are bothering with tax cuts. According to the Paradise Papers, owner of the Loy Yang power plant shifted $1b off shore simultaneously pocketing $117m in tax payer subsidies.