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Business tax changes to 'kick-start' stalled economy

30 March, 2015

"Changes to business taxation in May's Budget could provide a much-needed boost to the Australian economy at a time when it is suffering from under-investment, slow growth rates and the legacy of a decade of slow productivity growth," Ai Group Chief Executive Innes Willox said.

"At the very least, the Government should stick to its longstanding commitment to reduce the rate of company tax to 28.5 per cent.  As the Treasurer said in last year's Budget Speech, this is a measure that would impact positively on around 800,000 businesses.  

"Through these 800,000 businesses a cut in the company tax rate would help raise investment, innovation and productivity and it would increase employment.  This is exactly what is needed with the economy spluttering along at sub-par rates of growth and, by all accounts, slowing further.

"While a rate of 28.5 per cent would still see our companies taxed at a rate higher than is generally the case for medium or small OECD economies, it would nevertheless be a major improvement on the manifestly uncompetitive existing rate of 30 per cent.

"To preserve the maximum impact of this measure it must apply to all companies.  It makes no sense to be half-hearted by scaling it back and denying it to larger businesses. Such a scale-back would substantially erode the potential benefits of higher investment, and more rapid productivity and employment growth.

"While some have suggested that a better approach would be to introduce accelerated depreciation for all small businesses – both incorporated and unincorporated, Ai Group's members, most of whom are small and medium-sized businesses, would clearly prefer a reduction in the company tax rate to a change in depreciation arrangements. Put simply, they would prefer a permanent reduction in tax liabilities to a change in the timing of deductions.

"That said it does make substantial policy sense to give small business entities tax relief by raising the amount of capital expenditure that qualifies for immediate write-off in the year of its acquisition.  This suggestion, together with the proposal to provide a period of accelerated depreciation for new investment, should be seriously considered in the context of the May Budget.  The economy needs a boost from increased private sector investment and measures such as these would be very timely.

"However, these measures should be considered in their own right and not be considered as alternatives to the reduction in the Government's longstanding commitment to lift international competitiveness by reducing the company tax rate to 28.5 per cent," Willox said.

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