Selling a tax cut for companies is difficult politically, as there is no direct identifiable benefit for voters. In an address before The Tax Institute yesterday, a Treasury official has acknowledged this while outlining potential economic benefits of reducing the corporate tax rate.
Many other countries have much lower corporate tax rates compared with Australia and I am not just referring to tax havens or other countries with low tax reputations. For example, the UK is already down to 20% and dropping to 18% over coming years. This couldn't happen if it doesn't make economic sense.
We don't operate in a vacuum - Australia needs to ensure it remains an attractive place to do business for our trading partners and comparative corporate tax rates is one important factor.
"The world is an increasingly competitive place," Mr Brake said. "As other countries improve their [tax] policy settings we can expect they will attract more foreign investment."A change to the company tax rate was "not necessarily an easy argument for the wider community to understand", he said.But "company tax matters because it affects the level of investment in Australia and in turn the stock of capital and the productivity of workers".Treasury had estimated that a reduction in the company tax rate to 25 per cent, done alongside a shift to more efficient taxes on labour and/or consumption (in the form of the GST), could add 1 per cent ot Australia's GDP over time.Wages would also be boosted, and ultimately, the productive gains would outweigh the cost of reducing the company tax rate from 30 to 25 per cent.