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Minerals Council of Australia says different tax rates lead to distortion

Posted on Oct 5, 2016

A more competitive corporate tax rate is an essential element to improving Australia’s productivity performance, sustain future economic growth and increase living standards. A reduction in the corporate tax rate will improve Australia’s competitiveness and prospects for economic growth.

Australia’s corporate tax system is increasingly uncompetitive. Australia’s 30 per cent company tax rate is too high for a capital hungry country reliant on foreign investment. It is now more than five points higher than the OECD average and almost ten points higher than the Asian region which is simply not sustainable if Australia is to effectively compete for new investment. As other countries continue to reduce their corporate tax rates, Australia’s competitiveness continues to deteriorate.

The prime beneficiaries of a lower corporate tax rate will be Australian workers. The overwhelming consensus among economists, Treasury and international economic agencies including the OECD, is that a lower company tax rate will boost economic growth, wages and jobs.

Australia’s mining industry faces a particularly heavy and rising tax burden. Mining tax ratios are at longer term highs with a combined industry wide company tax and royalty ratio close to 50 per cent. Official company tax data show mining to be among the most highly taxed industries in Australia.

Mining is a capital intensive industry, characterised by high-risk exploration outlays, large upfront capital commitments, long-life assets and long lead times to profitability. A more competitive corporate tax system is vital to ensure Australia can secure the benefits of the mining investment boom and capture the next wave of mining investment.

The Minerals Council of Australia (MCA) supports the Government’s ‘Enterprise Tax Plan’ to progressively reduce Australia’s corporate tax rate towards the current OECD average of 25 per cent. It is an important step in moving Australia away from its heavy reliance on income taxes and will help restore Australia’s position over time with a globally competitive corporate tax rate.

A staged reduction implements a rate reduction in a fiscally responsible way. An economy-wide corporate tax cut for all businesses operating in Australia, small and large, avoids introducing distortions and additional complexity into the corporate tax system.

A number of myths been perpetuated in the recent debate on company tax. Suggestions that Australia is a ‘low tax’ jurisdiction contradict OECD data, which shows that the Australian company tax rate is higher than the average and that Australia is overly reliant on income taxes, including company tax. Claims that a company tax rate reduction will create a gaping hole in government revenue ignore offsetting revenue gains from increased tax collections stemming from the economic growth dividend and revenue costs pale in comparison to corporate tax revenues.

Both major parties have introduced and supported reductions in the corporate tax rate over the last 30 years in recognition of the economic benefits a competitive corporate tax system delivers for Australians. The last corporate rate reduction (to 30 per cent in 2001) moved Australia closer to the then OECD average and enjoyed bipartisan support. The policy arguments for a reduction in the company tax rate to restore it to the OECD average remain the same today.

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 should be passed by Parliament.

This is part of the Mineral Council of Australia submission on the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016