A top Treasury official says a cut in the company tax rate would attract more capital investment to Australia, but it does raise other problems.
Ahead of Treasurer Joe Hockey kick-starting a review of the taxation system, deputy Treasury secretary Rob Heferen has laid out reasons to consider lowering the 30 per cent company tax rate.
He told a conference in Melbourne that Australia’s company tax rate is high by global standards, particularly given that many other countries have substantially reduced their rates.
“High company tax means that Australia loses economic value because some investment becomes unviable,” the head of Treasury’s revenue group told the Minerals Council of Australia biennial tax conference.
A higher level of investment should increase productivity and demand for labour, resulting in rising wages and consumption.
“Therefore, reducing company tax increases the prosperity of Australian workers,” Mr Heferen said.
However, a reduction in the company tax rate would also provide a windfall for existing foreign investments, which were funded on the assumption of a higher tax rate, and if repatriated would mean no benefit for the Australian economy.
Reducing the company tax rate would also reduce tax revenue in the short term, although in the long term, the decline would be partially balanced by increased economic activity derived from additional capital investments.
“But this has long lead times. What happens in the meantime? This is a matter for the white paper,” he said.
The discussion paper will be followed by a green paper outlining reform options and then a white paper setting out the government’s reform package.
That will be taken to the 2016 election.