Business backs company tax plan
Release date: 2/05/2016
Australian Financial Review, by Phillip Coorey, Patrick Durkin & Jamie Freed, May 2, 2016
Business leaders have made a last ditch plea for the federal government to commit to cut corporate tax in Tuesday's budget but will have to wait several years with the government expected to chart a path to a lower rate over the decade ahead.
Sources have confirmed that with small and medium enterprises the focus of the government's measures, they will receive a small up front cut on top of their current 28.5 per cent rate, while a phased-in reduction to an "aspirational" lower rate for larger companies will be slated to begin towards the end of the budget period.
The 30 per cent rate for big business will phase down faster than the rate for small business, to ensure the same low tax rate is arrived at by the end-of the phase-down period, which could be 2025.
However, the so-called glide path will be legislated to provide investor certainty. Labor have ruled out a cut to the company tax rate.
Wesfarmers chief executive Richard Goyder, Qantas chief executive Alan Joyce, Fortescue Metals chief Nev Power, venture capitalist Paul Bassat and businessman Tony Shepherd, urged Treasurer Scott Morrison to reign in unsustainable spending in his first budget and focus on policies which promote growth.
But the business leaders have offered Mr Morrison a last minute olive branch, conceding if the decision to dump changes to the GST and prioritise personal tax cuts means they will not receive a big up front reduction to the 30 per cent corporate tax rate, the government should commit to phasing in a lower rate.
"A commitment to reducing company tax rates, ensuring all businesses pay their fair share of tax, and policies which give a fair outcome for example for superannuation would be good in totality," Mr Goyder told The Australian Financial Review.
SMEs stand to win
Australia Post chief executive Ahmed Fahour said Mr Morrison's focus on SMEs was a good sign. The budget is expected to contain measures similar to last year's $20,000 instant asset write-off for small business. That scheme could be expanded and extended beyond its expiry date of June 30, 2017, or be augmented by other similar measures.
"They are the engine room for jobs. They are an engine room for innovation and entrepreneurialism and they provide a huge opportunity for Australia to continue that migration from a mining-led country to more service-led," he said.
Mr Shepherd, the businessman who wrote the blueprint for the widely criticised 2014 Abbott budget, said business expectations for the budget were low are many were already looking ahead to the July 2 election for stronger commitments on tax, infrastructure and workplace relations.
"Business does not expect much direct stimulus out of the budget although lowering personal income tax should help business conditions given the slow growth in real wages," he said.
"Above all else business wants stability and predictability. Lower company taxes, serious deregulation and a balanced budget would be a bonus."
Don't end up like Ireland
Mr Joyce said there had been a good public debate over tax changes but it was time for the government to make a final decision.
"Like a lot of businesses, we want certainty about the budget and certainty about when the election is going to be because when elections are called generally they cause uncertainty and they have an impact on demand," he said.
Mr Joyce also said it was clear the country needed to fix its budget deficit problems and to live within its means.
"We've seen countries like my home country of Ireland, which got into all sorts of trouble and the austerity was terrible. My parents eventually suffered as a consequence of that. We all know eventually it comes home to roost and you want to do things in a way where people aren't going to suffer at the end of the day with extreme austerity because you have it out of kilter."
The RBA factor
Chairman of Nestle and the Australian Institute of Company Directors Elizabeth Proust said the potential for a rate cut on budget day meant the "danger for the Treasurer and the government is this will reinforce the fragility of the economy and further impact on consumer and business confidence".
"It seems almost certain that super concessions for high income earners will be reduced and that tobacco taxes will be raised. Consistently and perhaps surprisingly over the last 5 years, directors have indicated a preference for a reduction in personal income taxes over a reduction in corporate taxes but we may see both in the budget, albeit, modest ones and most likely phased in."
The Business Council of Australia have been stepping up their campaign for a uniform company tax rate of 28.5 per cent – which applies to small business with turnover of less than $2 million – for all companies and a commitment to move to a 25 per cent rate.
"Our rate of company tax is one of the most uncompetitive in the world . . . this will simply align Australia with the OECD average," BCA president Catherine Livingstone said. "Two-thirds of the benefits of company tax reductions flow to Australian households, primarily through higher real wages."
Start-up tax breaks
Mr Bassat, who co-founded SEEK and venture capital fund Square Peg Capital, also wants the government to fast-track incentives for the start-up sector and reduce the reliance on personal and corporate tax.
"The innovation statement announced by the government last December was a major step forward in supporting the transition of our economy to a more knowledge based economy. We need to reduce the reliance on personal income tax and corporate tax," he said.
Fortescue's Nev Power called for a focus on sustained investment, jobs and stronger communities.
"The government's agenda for northern Australia is a great example of strategic spending to unlock the potential from the 40 per cent of our land mass north of the Tropic of Capricorn, at the same time contributing to the major challenge of closing the gap for Aboriginal people."
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