Mark Molesworth, tax partner at professional services and accounting firm, BDO today said:
The Parliament needs to stop playing political football with tax reform. Treasurer Morrison needs to hold firm on the first stage of his 10-year corporate tax cut plan to give Australia’s small and medium businesses a better chance at being more globally competitive.
We need a simpler and fairer rate of company tax for SMEs. Moving to a single company tax rate (of 27.5%) for those with a turnover of under $10million means that small businesses (under $2m turnover) get a 1% benefit and medium businesses ($2-$10m turnover) will benefit from a 2.5% tax cut. Having a single rate for this group will play into the jobs and growth agenda for Australian small businesses which are the job creation engine room of the economy. However, our call for certainty for SMEs should not be seen as the single solution. Holistic tax reform is still required.
BDO recently conducted a quick poll which supports this - almost 83% of (1,215) respondents agreeing that the government should reintroduce a broad tax reform process. 65% of poll respondents agreed that the Government should fast-track the proposed 10 year corporate tax rate reduction from 30% to 25%.
There is a need for Tax Reform
The reduction in the resources boom, lower inflation and low wages growth has generally resulted in lower Federal Government revenue. Australia’s move to reduce the corporate tax rates may seem to be a contradictory move in such times. However, the theory is that lower corporate tax rates will increase the economic performance of companies, which then increases their taxable profits and encourages them to employ more tax paying employees, thus offsetting the corporate rate reduction but also resulting in greater economic activity.
Whether this will work for Australia remains to be seen but this appears to be the only tax measure the Federal Government is relying on to do most of the heavy lifting in its fight against a lagging economy. However, the corporate tax rate is only one of many tax levers the Government could be pulling to restore the Australian economy.
We suggest the Federal Government should be reinstating a holistic tax reform process to identify the many other inefficient and ineffective tax measures that are holding back the Australian economy.
Need for Parliamentary Co-operation
With interest rates being at such low levels it leaves little room for the Reserve Bank to further stimulate the economy and therefore the Government’s use of fiscal policy appears to be its only avenue to restore confidence in a lagging economy. However, the Government is finding it very difficult to get its tax cuts and most of its other fiscal policies through a fragmented senate
With negative growth in the latest quarterly accounts and the call by the ratings agencies for Australia to implement the proposed budget savings or face a downgrade of Australia’s AAA rating, it now more important than ever for the Government and the opposition parties to negotiate in good faith the passage of the 2016/17 budget measures for the benefit of the Australian Economy.
We encourage both sides of Parliament to put aside years of bitter confrontation and obstruction by both sides and genuinely work together to bring Australia out of the real possibility of a recession in the near future if rational policies to repair Australia’s budget position are not implemented soon.