PERTH (miningweekly.com) – The Minerals Council of Australia (MCA) has welcomed new research that suggested a reduction in Australia’s company tax rate would benefit wage earners and consumers, and could stimulate new foreign investment.
The paper, titled 'Growing the Australian Economy With a Competitive Company Tax', noted that Australia currently had one of the highest tax burdens on capital investment, with the country rating as the fourth highest effective tax rate among 34 Organisation for Economic Cooperation and Development countries considered.
Australia’s company tax rate was currently at 30%, and had remained unchanged for the last decade, while other countries had worked to reduce their capital taxation in order to encourage economic growth.
The study recommended that Australia signal a move to a 25% company tax rate, noting it should also consider an eventual move to a 20% rate to match that of the UK.
“The report demonstrates that the burden of Australia’s high company tax rate falls largely on wage earners and consumers,” said MCA CEO Brendan Pearson.
“It is a myth that company taxes are paid by the rich and powerful. A survey of recent studies shows that at least two-thirds of company tax is shifted onto labour through higher consumer prices, wage cuts and lay-offs,” he quoted from the report.
The report concluded that high company tax rates inevitably led to lower investment, with consequent adverse impacts on innovation, productivity and wage growth.
“A high company tax rate hurts growth by deterring investment decisions and the adoption of new technologies,” Pearson said.
Conversely, the study also highlighted the impact that a lower company tax rate would have in stimulating new investment, especially foreign investment, noting instances where foreign direct investment flows grew by as much as 2.5% for each one point reduction in the corporate income tax rate.
While the study results considered non-resource investments, including those in the services and manufacturing industry, the study also showed that Australia’s tax burden on mining was one of the highest among major mining countries.
Based on effective tax and royalty rates on iron-ore investments, Australia in 2015 had the third highest tax burden on new investment among nine resource-based economies.