16th February 2018

Cutting corporate taxes is a hotly debated issue across the globe. Strong supporters argue that doing so attracts investment, while opponents argue such legislation hurts local economies, job seekers and families. Despite this, the Australian government aims to push forward with plans to cut corporate taxes.

With the goal to encourage growth and compete for investment, the government plans to cut taxes for all companies by 25 to 30 percent by 2025. The bill has been met with mixed support. While MP’s in the lower house voted in favour of the bill 75 to 71, the legislation has yet to win over the Senate. Opponents argue that passing the bill will mainly benefit the shareholders of foreign companies, increase the budget deficit and fail to spark the economy.

Countries around the world are competing for investment. They are trying to attract investors, create jobs and stimulate the economy; cutting corporate taxes is the carrot on the stick used to entice inward investment. Though, this is likely not the only reason the government is pushing for the bill. Australian politicians are likely watching other country’s tax legislation with a curious eye.

The US and UK governments have implemented dramatic corporate tax changes. As of 1st January, the US lowered company tax rates to 21%, and the UK’s rates have also dropped over the years – falling from 28 percent in 2010 to 19 percent. If Australia fails to pass these corporate tax cuts, the country’s tax policy will fall behind that of other global leaders.

“US moves, along with other nations’ commitments, will leave Australia with the second-highest company tax rate in the OECD,” said BCA chief executive Jennifer Westacott.

While the tax policy is likely aimed to increase competitiveness, there are plenty of skeptics who disagree with the proposed legislation, though Australian Treasurer Scott Morrison said “I cannot understand how keeping taxes high for these businesses helps them employ more Australians or boost their wages, it just doesn't make any sense.”

Outside of the political spectrum, economists have their doubts about the proposed legislation. According to some, Australia already offers generous tax breaks to companies.

Aberdeen Standard Investments’ chief economist Jeremy Lambson notes the potential drawbacks of slashing corporate taxes. He said that if the government passes this bill in isolation, it could actually add to the budget deficit and not realise the expected growth that would justify implementing it.

Many Australians across the country disagree with the bill as well. Peter Swan, a professor of finance at University of New South Wales business school, strongly disagrees with the legislation, noting how it could have dramatic effects on people across the country.

“This corporate tax plan is a disaster that would cost every Australian man, woman and child about $1,600...Because of dividend imputation it would simply benefit foreign companies without increasing investment in Australia,” Swan said.

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