The Financial Services Council (FSC) has called for an eight per cent reduction in company income tax to 22 per cent in order to stimulate “growth, investment and employment”.
In a tax reform package proposed by the FSC yesterday, it was argued that a new company tax rate of 22 per cent – down from the current 30 per cent – will grow the Australian economy and mitigate its lagging productivity and competitiveness.
FSC director of policy Andrew Bragg said: “Australia needs a new tax mix to create growth, jobs and investment.”
Under the FSC’s proposal, modelled by KPMG, the new company tax rate would be funded by increasing the GST to 15 per cent.
FSC’s modelling found that if implemented, the proposed tax package would result in an Australian economy that is 1.9 per cent per cent larger than it is currently. Moreover, new investment would increase by approximately 3.7 per cent.
When compared to the average tax rate in Asia of 22 per cent, Australia's comes in significantly higher, FSC pointed out.
Further, FSC argued that reducing company tax will reduce budget volatility – a lower reliance on company tax will mean that Australia’s future budgets will be less subject to revenue write-downs.
The FSC proposal also includes indexing of the personal income tax thresholds.
“Australia’s ageing population demands that our governments restrain expenditure. Ending bracket creep will drive better fiscal accountability,” Mr Bragg said.
FSC concluded that real wages will likely increase by 1.4 per cent under the changes, with labour productivity also increasing by 1.8 per cent.
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