25th October 2017

Australia’s company taxes are some of the highest in the world. As of October 2017, Australia has the fifth highest company tax of the 35 countries in the OECD.  And if the current company tax rate is not reduced in the near future, Australia will likely have the third highest rate.

When it comes to domestic shareholders, cutting company tax rates may prove little benefit due to Australia’s imputation tax credit system. However, a failure to reduce these tax rates could have an effect on foreign investment in the country, as many investors compare company tax rates when they choose where to invest.

In 1986, Australia’s company tax rate was 49 percent. While that number fell to 30 percent by July 1, 2000, there has been little to no change since then. Today the majority of businesses are still taxed at 30 percent. And there is a growing fear that if company taxes are not reduced, Australia will become a less than ideal country for investment.

Treasurer Scott Morrison summed up this concern in a recent interview, “Unless we can convince the Labor Party, and the Parliament, to pass the tax cuts that we currently have in the Parliament, which we introduced back in 2016, then the Labor Party will leave Australian businesses stranded on a tax island—uncompetitive with the United States, with the United Kingdom, with Singapore.”

To put Australia’s company tax rate in perspective, it must be compared to those of other countries. Singapore’s company tax is currently 17 percent and the United Kingdom is 19 percent. While the USA currently has a 35 percent company tax rate, President Trump and his present administration are intending to reduce it to 20 percent.

Would a reduction in company tax make Australia more competitive for investment? It is questionable. The current proposal intends to reduce the tax rate to 25 percent. As it would likely take more than ten years for these cuts to be phased in, Australia would still have higher rates than the UK, Singapore and many other countries in the OECD. If Australia becomes a less ideal place for foreign companies to invest, then what are the consequences?

According to Morrison, it could have a direct effect on job creation. “The world is moving to lower taxes on corporate investment all around the world. And if you get out of step with that, the money will go elsewhere and so will the jobs.” 

In other words, Morrison seems to believe a failure to reduce company taxes now could cause a higher unemployment rate in the future and potentially hurt the economy.




         Chartered Accountants

Tax Institure