CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Aus Treasury Concerned By US Corporate Tax Cuts

Aus Treasury Concerned By US Corporate Tax Cuts

by Mary Swire, Tax-News.com, Hong Kong

09 November 2017


The Australian Treasury has released a paper that considers the implications of proposed reforms to the US corporate tax system, and which warns that Australia's GDP and real wages could be affected by the changes.

The paper examines the likely impacts of the proposed reforms on the US and on the rest of the world. The package included a cut to the US federal corporate tax rate from 35 percent to 20 percent, the expensing of depreciable assets, an exemption for dividends paid by certain foreign subsidies to US companies, and a one-time tax on overseas profits.

The paper concluded that the economic impact of the proposals "will depend on how time and compromise shape the package that is ultimately legislated." The size of the cut, the manner in which it is funded, and the perception of investors as to its permanency are all expected to be key factors.

The paper suggested that, if a cut in the US corporate tax rate does result in a US investment boom, "the rest of the world is likely to experience reduced foreign investment and, as a consequence, lower GDP and real wages than might otherwise be the case."

The paper noted that the impact on Australia will ultimately depend on how the rest of the world responds to any US tax cuts, and suggested that it is likely that countries may lower their own rates and/or introduce more preferential allowances for capital investment. The paper explained that this would form part of an overall trend, and pointed to the fall in the OECD-average corporate tax rate from 32 percent in 2000 to 24 percent today. It also observed that economies such as Canada, Singapore, the UK, and New Zealand have all cut their rates in the past 10 years.

Australia's headline company tax rate is 30 percent. The small business rate was reduced to 27.5 percent earlier this year, in tandem with an increase in the turnover threshold for access to the rate. Further increases in the turnover threshold will follow in the coming years. However, the Government was unable to carry legislation to reduce the rate to 25 percent for all firms, and has re-introduced the outstanding elements of its Enterprise Tax Plan to Parliament.

Commenting on the paper's release, Treasurer Scott Morrison said: "The paper raises serious concerns that should the US implement the Trump company tax cut, investment in Australia will potentially fall, leading to flow-on effects including lower wages for hard-working Australians and lower economic growth."

He added: "In highlighting the risk to Australia's international tax competitiveness, the report finds that other countries would likely respond to any US company tax reduction to avoid negative effects. Competition between jurisdictions could accelerate. A permanent reduction in GDP and real wages might become a reality unless steps are taken to maintain Australia's competitiveness."

Ultimately, the paper found that the impact on Australia will "depend on the cumulative effect of such changes and how Australia responds."

The paper noted that the Treasury estimates that the size of the Australian economy would "permanently increase by just over one percent in the long term given a five percentage point reduction in the Australian corporate tax rate." The revenue lost as a result of the company tax cut would in the long term be recovered through increased economic growth.

According to Morrison, the revenue return of cutting the company tax rate to 25 percent is estimated "to be about 45 cents per dollar of net company tax, with eight cents accruing to state and territory governments and 37 cents to the Commonwealth."

Morrison warned: "Clearly Australia risks being left behind. It is as simple and as stark as being potentially marooned on our own tax island. The Turnbull Government gets this. That's why we are moving to shore up our competitiveness on investment through our fully-funded Enterprise Tax Plan, which has already delivered lower taxes for businesses with turnovers of up to AUD50m (USD38.4m)."

TAGS: tax | investment | small business | business | corporation tax | Australia | Singapore | tax thresholds | ministry of finance | legislation | tax rates | Canada | New Zealand | dividends | tax reform

To see today's news, click here.

Leave a comment

Read our Posting Guidelines

 






Close

Password Reminder

Please enter your email address to receive a password reminder.

 






Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Tax-News+ Updates

Receive FREE daily updates from Tax-News.com, straight to your inbox. Register Now!

For a tailored solution, choose to receive selected news updates for your preferred jurisdictions and topics, with our enhanced Tax-News+ subscriber service. Read more...

 

Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »