The plan comes after Social Services Minister Scott Morrison announced a levy intended to fund the recently-abandoned paid parental leave (PPL) scheme wouldn't be directed to childcare.
The PPL levy of 1.5 per cent, which was to be paid by Australia's 3000 largest firms, will be dropped however the government will renege a promised corporate tax rate cut for them from 30 per cent to 28.5 per cent to ensure the federal budget will not be impacted. Smaller firms outside the top 3000 will still see a tax rate cut of at least 28.5 per cent, creating the two-tiered system last seen from 1948 to 1972.
The original PPL plan was to offer a 1.5 per cent cut to all companies, however those with annual profits in excess of $5 million would have had the benefit neutralised by the PPL levy.
The announcement has sparked heavy criticism from industry and business.
Denying business and economy benefits
"Reports that the Government may not proceed with the promised company tax rate cut on 1 July 2015 would deny business and the economy the benefits such reform would undoubtedly deliver," Australian Industry Group Chief Executive, Innes Willox said.
"It would be a folly to restrict the company tax rate cut by applying it to smaller businesses but not larger businesses as has been suggested."
Major distortion to tax system
Business Council of Australia CE Jennifer Westacott said: "A two-tiered company tax rate would introduce a major distortion in our tax system at a time when all businesses are struggling to stay competitive in a softening economy, and has the potential to seriously dent business confidence when the focus should be on jobs.
"We must lower Australia's high company tax rate for all businesses to spark investment and jobs.
"This should be part of properly designed tax policy, not more ad hoc changes.
"The Business Council has always opposed differential company tax rates because of the added complexity and potential to distort investment.
"This would further weaken our competitive position as the economy adjusts to the largest fall in the terms of trade for 50 years."
