In response to the United States’ plan to slash its corporate tax rate, discussions have emerged in Australia regarding its own tax policies and the need for reform to keep the country’s economy strong.
Scott Morrison, Australia’s Treasurer, warned Congress that the Australian economy might contract by 1 per cent if it doesn’t enact corporate tax cuts of its own.
According to The Guardian, Morrison specifically argues that these tax reductions “are now necessary not because they will add 1% Australia’s GDP growth, but because they will offset a damaging 1% hit to GDP that will supposedly flow from the huge tax cuts in the US without Australia responding.”
Morrison suggests slashing the country’s corporate tax rate from 30 to 25 per cent within the next few years for the country to be able to compete with the United States and other jurisdictions that are moving in the same direction.
Morrison said in an article in The Australian, “The Trump tax cuts are coming. If we fail to respond, they will take Australian jobs, investment and wages with them.”
“My summer’s homework will be focused on how I can deliver personal income tax cuts and personal income relief for middle- and low-income workers,” he added.
Australia’s Finance Minister Mathias Cormann confirmed this position, saying that the country has “to ensure that our businesses have the best possible opportunity to succeed. We can't leave them with this excessive lead in their saddle bag.”
“The future job security, the future career prospects, the future wage increases of Australian workers depend on the Australian parliament passing a more competitive business tax rate here in Australia,” Cormann added.
Morrison also took this opportunity to criticize the Labor Party’s leader, Bill Shorten, for failing to support a corporate tax cut for the country.
The Treasurer said, “By refusing to support the enterprise tax plan [Shorten] is working for our economic opposition,” urging him to “work in Australia’s economic interests.”
“It is critical that this obstructionism and populist opportunism ends from Bill Shorten. So, I would encourage them to re-think their position,” Morrison added.
Big Business Supports Corporate Tax Cuts in Australia
Of course, Australia's largest business have come out in support of slashing the country's corporate tax rate.
Jennifer Westacott, the CEO for the Business Council of Australia, agreed with Morrison and believes “this is a critical moment for our political leaders.”
“The US understands how crucial to their economy it is to have a competitive company tax rate. Why don’t we?”
“The battle for global investment dollars is fierce and we are losing out,” Westacott concluded.
Furthermore, Alan Joyce, CEO of Qantas, said, “If Australia's company tax rate remains so much higher than others in the world, we can expect to see more investment move offshore.”
Likewise, Alison Watkins, Coca-Cola Amatil's Managing Director, shared this sentiment, stating, “There's no doubt a lower company tax rate makes Australia a more attractive place to invest capital and create jobs. The reality is that Australia's business tax rates are high compared to OECD averages.”
Opposition Believes Corporate Tax Cuts Will Hinder the Economy
On the opposite side of the spectrum, Australia’s Labor Party thinks it would be fiscally irresponsible to slash the corporate tax rate, as it would lead to a budget deficit and put a greater burden on the middle class.
Shadow assistant Treasurer Andrew Leigh said the government acts “like lemmings following Donald Trump off the fiscal cliff. The proposal that Australia should put in place a budget busting tax cut is an economic mistake.”
The Australia Institute’s Ben Oquist agrees with the opposition’s stance on corporate tax rates, suggesting that a cut “would increase inequality and only benefit foreign multinationals and investors.”
"It's an international race to the bottom that serves a few, and not the economy overall, or society overall," Oquist said, adding that “less revenue for the government means less spending on health, education, social services, and more money for the big end of town.”
In 2017, Australia’s legislature approved of a corporate tax reduction from 30 to 25 percent for companies with revenues below 50 million Australian dollars, and there are plans in 2018 to revisit this cut for those larger firms with earnings that surpass this threshold.
Do you think there’s a trend in place with countries looking to make their corporate tax rates more competitive?
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