Tax, tax, tax… typically not the most interesting of topics, But as a small-medium business owner it will matter to you.
In light of recent news, PwC’s Tom Seymour, managing partner of PwC’s Tax and Legal unit, has modelled a report pushing for a corporate tax drop from 30% to 25%, with some impressive figures to back him up. He argues that such a cut is necessary to increase Australia’s slipping international competitiveness, where the OECD average is at 26.6% which is particularly skewed due to USA, Japan and Germany having high corporate tax rates.
The Numbers
Seymour is proposing that a corporate tax rate cut would result in such impressive economic growth that in turn, will create more taxable profits within five years, such that it would offset the apparent loss in tax caused by the cut.
It’s forecasted that the cut will see a $291 billion growth dividend, and by 2025, GDP is expected to be $100 billion larger.
What Does This Mean To You?
If the corporate rate does drop, business owners, in particular small-medium business owners will be the biggest winners here. Particularly, you will be the first point positive impact. You will be able to keep more profits, pay better wages, expand – the flow-on effects will start with you. And hopefully from this, the whole economy will continue to do well.
The Flip Side
All of these numbers sound all good and well, but when looking to tax cuts, other considerations must be taken into account. Other prominent proponents against the tax cuts raise the point that powerhouse economies are better off investing in proper growth drivers such as infrastructure. They argue that building efficient rail and port systems as well as funding research and development is the key to growth. In terms of the future, perhaps investing in the proper foundations and building blocks will be more desirable than a vicious tax race to the bottom.
Additionally, Australia’s tax system accounts for dividend imputation (or franking credits), which means after taking into account the dividend imputation, the effective corporate tax rate is around 20-22%. Also, worth noting, many resource-rich countries in South America such as Argentina (35%) and Brazil (34%) maintain such high tax rates. Australia is resource-rich, should we maintain a higher rate?
Who are we kidding – who wouldn’t like corporate tax cuts with amazing flow on effects?!
Stay tuned for more updates in this current highly topical area of interest. Watch this space!
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