Another leading economist, Chris Richardson, has sounded an alarm. He is sceptical that Australia will come to an agreement on a reform to company taxes. For him, despite agreement that reform is needed, doubts still loom over whether the parties can or will come together to find common ground. Member for Wentworth, Allegra Spender, who attended the last economic reform round table, spoke to the challenges of introducing a cashflow tax. Her remarks reflected the feelings expressed by many other attendees.
The debate over Australia’s company tax rates is starting to boil over. Business groups and economists are very actively trying to get the current 30% rate as low as possible. This rate is particularly high when compared to many international comparators. Richardson pointed out that Australia’s tax structure currently disadvantages foreign investment, stating, “Australia is stuck with something that is biased against foreign investment.”
The Case for Company Tax Reform
So when the discussion about reforming company tax was in full swing, Richardson made a very powerful argument for reform. His plan called for a minimum 20% tax rate for corporations with yearly revenue over $1 billion. This new rate would bring the great majority of businesses under current Australian operations into the tax net. He thinks that kind of change would really boost our investment and help us grow the economy faster.
Richardson outlined the potential benefits of adopting a 5% net cashflow tax, which would provide incentives for businesses to invest in capital. He understood the problems of the existing tax approach. This system usually prejudices results in favor of the big businesses that are endowed with outsize market power.
“Our path to prosperity relies on getting businesses to spend more money today in ways that they hope to make money from tomorrow… This would be comfortably better than what we have at achieving that.” – Chris Richardson
Even as Richardson continued to push for reform, he sounded doubtful that a compromise was possible to be found in negotiations. He highlighted the lack of shared understanding among key players in the discussion, stating, “There’s just not that shared understanding between the key players. We’re starting from a long way back.”
The Complexity of Cashflow Tax
Member of Parliament Allegra Spender participated in the round table discussion and expressed her alarm. Second, she noted that the cashflow tax would be very complicated to implement. The theoretical arguments in favor of such a system were strong, she conceded. As she argued, moving towards it in practice presents serious hurdles to overcome.
“I think theoretically a cashflow tax has a very strong argument behind it, but the transition to that system creates real problems.” – Aruna Sathanapally
Cashflow taxation is administratively complicated and very often deters most small businesses from successfully complying. Spender pressed the need for clearer alternatives to lessen the tax pay burden on these firms. She remarked on the importance of streamlining processes to promote investment, stating, “The area where there is opportunity is around simplicity and the speed of decision-making.”
Richardson’s statements struck a chord with TTC’s Spender and her alarm about complexity. Perhaps most foreboding was his warning over the politics around business investment. Public sentiment usually doesn’t favor corporations and corporations’ motives are always questioned. He commented, “We want businesses to invest more because Australians will be comfortably better off if they do. The politics are tricky because people hate their guts and deeply distrust them.”
The Road Ahead for Company Tax Reform
The debate on corporate tax reform illustrates the tangled Web, where different interests have a tendency to clash. Aruna Sathanapally, another economist present at the round table, remarked on the difficulty of reaching a consensus: “The company tax question is genuinely tricky.” She went on to explain that there is great disagreement right now on the most effective approaches to drive the needed investment.
Richardson emphasized that both sides of the debate—the business community and labor unions—have legitimate arguments. He stated, “Pretty much everything that big business says about investment is true, and pretty much everything that union leaders have said about fairness is true.”
This limiting dynamic generated by all of these players’ competing interests can be an incredibly challenging space to ignite a collective, singular alternative action forward. Richardson concluded his thoughts by expressing doubt about the future of company tax reform discussions: “I see little potential of any breakthrough.”
