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Australia's Corporate Tax 'Too High,' Says OECD

by Mary Swire,, Hong Kong

21 December 2012

Australian authorities must re-adjust the composition of the nation's tax regime to allow for lower tax rates on companies, according to a new report from the Organization for Economic Cooperation and Development (OECD).

The OECD's Economic Survey of Australia notes that the country is faced with the challenge of modernizing its tax regime to make it more competitive, enabling it to better take advantage of its geographical position near emerging market economies in Asia. The report underscores that the nation must "maintain flexible markets, introduce tax reforms and enhance its medium-term fiscal strategy so its economy is prepared to take full advantage of the wide-ranging changes taking place. This means ending public subsidies for industries or sectors where the country no longer has a comparative advantage, including agriculture, automotive manufacturing and energy."

"Resulting budgetary savings could be used to fund a reduction in Australia’s 30% corporate tax rates, which remains too high," the OECD says. "The medium-term objective of reducing net debt is welcome, but the government should also consider creating a stabilization fund to capture mining-related revenues and insulate budget and spending decisions from commodity price swings."

The report notes that effective corporate tax rates in Australia are higher than in most comparable advanced nations. As well as cutting the headline corporate tax rate, the report recommends that authorities could extend the loss carry-back scheme to unincorporated firms.

On the other hand, the OECD suggests that Australia's Goods and Services Tax is low by international comparison. There is substantial scope, the report says, to raise the yield from the GST by increasing its rate and broadening its base.

On mineral taxation, the OECD has recommended that the government implement a broader resource rent tax and consider replacing state royalties by a mineral resource rent tax (MRRT) modeled on the federal approach, allowing states to set their tax rates. This change should be accompanied by broader MRRT coverage, which is currently limited to iron and coal mining and excludes small firms, the OECD says.

Other recommendations in the report include that Australia should: rationalize other state taxes, for example by reducing or removing conveyance duties and the progressivity of the state land tax; broaden the state land tax base by eliminating exemptions for owner-occupiers; and cut subsidies to first-home buyers.

TAGS: tax | economics | business | mining | royalties | fiscal policy | Australia | manufacturing | tax rates | tax reform

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