Cutting the company tax rate: why would you?

Examines proposals to cut company tax rates by looking at the circumstances of some of the main company tax-payers, namely the top 15 listed companies in Australia. Summary The purpose of the present paper is to critically evaluate the arguments for cutting the company tax rate. Company tax is a complicated affair yet there are many advocates of lower company tax that pretend it is a simple proposition—cut taxes and benefits such as investment and innovation will follow. Hence the strong calls for reductions in the company tax rate from 30 per cent to 25 per cent. We find that a reduction in company tax to 25 per cent would give Australia’s top 15 listed companies a benefit of $58,075 million over the 10 years from July 2016. Those companies paid $21,742 million in company tax in Australia in the financial year ending in 2015 which amounts to something like a third of total company tax. For the big four banks a reduction in company tax to 25 per cent would mean a benefit of $2,019 million in 2016-17 and $29,711 million for the decade starting that year. The Commonwealth Bank alone would receive benefits worth around $623 million in 2016-17 and a staggering $9,159 million over the decade. None of the big 15 companies are likely to be big innovators or investors in the near future and it is hard to see what investment or any other return Australians would receive in return for the $58,075 million gift. Of course not all of the reduction in company tax would be lost because almost half of the reduction in company tax would be recovered through a reduction in franking credits through the dividend imputation system. Hence a cut in company taxes has only a small impact on the total collected in both company and personal taxation with respect to the Australian shareholders. Australian shareholders see no difference in their after tax position so it is hard to imagine that the ultimate company owners would perceive any increase in the incentive to invest or innovate. In the case of foreign shareholders many will likewise receive no change in their incomes but foreign tax authorities are likely to gain at the expense of the Australian tax office under the double tax agreements Australia has with many countries in the world