Les Nielson
Proposed changes
Over a 10 year period, starting from 1 July 2016, the
company tax rate for all companies is to be reduced to 25 per cent. This will
be achieved by progressively lifting the aggregated turnover threshold at which
the small company tax rate of 27.5 per cent applies (see separate brief - Small
company tax rate reduction). [1] The 27.5 per cent rate
will then apply to all companies at which point in time, in 2024–25, the
overall company tax rate will progressively reduce to 25 per cent. Table 1 sets
out this time line:
Table 1: Time
line for reduction in large company tax rate
Year |
Aggregated turnover threshold ($m) |
Rate (%) |
2016–17 |
10 |
27.5 |
2017–18 |
25 |
27.5 |
2018–19 |
50 |
27.5 |
2019–20 |
100 |
27.5 |
2020–21 |
250 |
27.5 |
2021–22 |
500 |
27.5 |
2022–23 |
1,000 |
27.5 |
2023–24 |
1,000 |
27.5 |
2024–25 |
All companies regardless
of turnover |
27.0 |
2025–26 |
All companies regardless
of turnover |
26.0 |
2026–27 |
All companies regardless
of turnover |
25.0 |
Source: Budget Paper No: 2[2]
Companies with an aggregated turnover above the relevant
threshold in any one year would, until 2024–25, still be subject to a tax rate
of 30 per cent.
International comparisons
Table 2 shows current and proposed corporate tax rates for
selected OECD countries and Singapore:
Table 2:
Current and future corporate tax rates, selected countries
Country |
Rate in 2015 (%) |
Lowest future rate (%) |
Australia |
30.0 |
25.0 in 2026–27[3] |
Canada |
26.3 |
|
France |
34.43 |
|
Germany |
30.18 |
|
Ireland |
12.5[4] |
|
Japan |
32.11 |
|
Korea |
24.2 |
|
Luxembourg |
29.22 |
26.08 in 2018[5] |
Netherlands |
20-25[6] |
|
New Zealand |
28.0 |
|
Singapore |
17.0[7] |
|
Spain |
28.0 |
25.0 in 2016[8] |
Sweden |
22.0 |
|
United Kingdom |
20.0 |
17.0 in 2020[9] |
United States |
39.0[10] |
|
Source: OECD Tax Data Base[11]
The above table shows the combined corporate tax rate for
central and sub-central governments, where the latter also imposes corporate
tax. While is tempting to compare Australia’s headline corporate tax rate with
those of other countries, regard should be had to the existence of the dividend
imputation system, which only Australia and New Zealand have full implemented, which
dramatically lowers the total tax collected from corporate profits.[12] The future tax rates are those that have been publically declared to date. They
are unlikely to be the only such reductions.
Economic impact
The government claims that a more competitive company tax
rate will generate economic activity encouraging investment, raising productivity,
increasing Gross Domestic Product (GDP) and, over time, raising real wages and
living standards.[13]
Any relationship between corporate tax rates and economic
benefits is complex.[14] Further, the research is
not conclusive and support can be found for both sides. [15] To the extent that there are benefits to lowering the corporate tax rate, there
is a question about the time they will take to materialise and whether that
will occur over the timeframe indicated by the Government. The Parliamentary
Library can provide members and Senators with information about the available
research.
Cost
Over the forward estimates period (to 2019–20) the proposed
changes are to cost about $2.7 billion.[16] Over the full ten-year
phase-in period to 2026–27, the Treasury Secretary has estimated that the
changes in the main corporate tax rate, together with all the changes flowing
from lifting the small business entity threshold, will cost the Commonwealth
Budget $48.2 billion in cash terms.[17]
All online articles accessed May 2016.
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