Business Council of Australia: Cutting company tax would bring in investment and boost economy

Australian companies need a tax cut and relief from the inflation-driving impacts of ballooning government spending, a top business lobby group has declared.

The Business Council of Australia will on Thursday release their pre-budget blueprint to get the economy moving, after growth close to the weakest level in decades through 2024.

It comes with a Federal election looming within months and after each Australian’s slice of the pie — GDP per capita — has been shrinking for nearly two years.

Cutting company tax and adding a new investment allowance were near the top of the BCA agenda.

Aussie businesses pay 30 per cent tax on profit — well above the OECD average of 21 per cent. The lobby group says that high tax rate is a key reason why business investment is close to 30 year-lows, which means slower wages growth.

“Australia’s company tax system is one of the most uncompetitive in the developed world,” BCA’s budget submission said.

A proposal by President Donald Trump to slash the United States company tax to 15 per cent will add pressure, because investment “all but dried up” when he cut the American rate to 21 per cent in 2017, BCA said.

The battle to cut company tax in Australia has been raging since at least 2009 when the Henry Tax Review found high business tax rates would likely lead to lower wages. Amid the political debate, corporate tax bills have jumped 70 per cent since before the pandemic.

BCA called for a new investment tax break as a “first step” with an instant 20 per cent deduction for capital spending.

That follows similar proposals on both sides of politics in the past 15 years, making the move more likely to score political backing.

But it will pit the lobby group against both the Reserve Bank and Treasury, which have expressed scepticism about investment allowances.

An RBA paper released last week found tax breaks for investment “seemed of limited benefit” outside recessions. Treasury analysis has favoured a broad company tax cut.

BCA boss Bran Black said the private sector would be key to lift Australian growth following a weak period close to 30-year lows.

“We need to unleash the private sector because it’s ultimately businesses that generate economic growth and prosperity, which ultimately helps raise the living standards of every Australian,” Mr Black said.

“The next Budget must prioritise making Australia an easier place to do business, attract investment for critical projects and lift productivity.

“The need for a new pro-business approach has been sharply clarified by the new US administration, with President Trump intending to dramatically lift US competitiveness with policy aspirations around further company tax cuts and a broad program of deregulation.”

Controlling the ballooning growth in government spending will also be on BCA’s wish list. The organisation wants a 2 per cent cap on spending growth, after five years of rocketing outlays which many economists have warned added to inflation.

BCA called for an end to the “energy wars” ahead of the Federal Election, warning the sector’s politicisation was chilling investment in the transition.

The lobby group said there should be a long-term, bipartisan energy deal with all technology on the table and an expanded Net Zero Authority. But that should favour private investment rather than government spending, the report said.