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Australia's FSC Calls For GST-Funded Corporate Tax Cut

by Mary Swire,, Hong Kong

20 January 2016

Australia's Financial Services Council (FSC) has called for a company tax cut and income tax reforms to be funded by a higher, broader goods and services tax (GST).

The FSC has released a package of proposed tax reforms, modelled by financial services firm KPMG. It recommended the reduction of the company tax rate from 30 percent to 22 percent, to bring Australia into line with the average rate charged in Asia.

According to the FSC, cutting company tax would "drive capital into Australia for new enterprises, jobs, and opportunities." It calculated that the introduction of a 22 percent company tax rate would increase gross domestic product (GDP) by 1.9 percent, investment by 3.7 percent, and employment by 0.1 percent. It would also deliver a 1.4 percent real term increase in wages and boost labor productivity by 1.8 percent.

The FSC stressed that a lower rate would reduce the federal budget's reliance on company tax and ensure that budgets are less subjective to revenue writedowns. It would further reduce the incentive for multinational companies to engage in profit shifting.

The FSC said that increasing the GST rate from 10 to 15 percent and broadening the base would raise more money than would be lost from the proposed company tax reduction.

The FSC also proposed the Government should adjust income tax brackets in line with inflation each year . Andrew Bragg, the FSC's Director of Policy, explained: "Australia's aging population demands that our governments restrain expenditure. Ending bracket creep will drive better fiscal accountability. Indexing the tax thresholds also prevents compensation given to households through tax cuts from being whittled away by bracket creep."

TAGS: tax | investment | gross domestic product (GDP) | budget | corporation tax | goods and services tax (GST) | Australia | tax thresholds | tax rates | tax reform | individual income tax | services

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