The Australian Industry Group (Ai Group) has sought to counter the anti-business sentiment held by some in Australia by lobbying for a reduction in the nation’s corporate income tax rate.
The group has produced a survey of Australian businesses and the results show a clear preference for stimulatory spending to enhance productivity rather than for exercising budgetary constraint.
“The report shows that the top budget priorities for business are reducing the company tax rate and increasing infrastructure spending. It shows business believes that in this current economic environment balancing the budget is not the main game,” said Innes Willox, Ai Group chief executive.
The survey asked 330 companies across manufacturing, services and construction to rank their priorities for the upcoming budget. More than a third of all respondents (35%) nominated a cut to the company tax rate as their number one priority. Among manufacturers this was even higher, with 43% reporting it as their first priority.
Increasing infrastructure spending was almost as important to business with a third of all companies (33%) listing this as their most important objective.
Despite the slowing economy, businesses favour objectives that will help rebuild competitiveness more highly than balancing the budget.
“Almost five out of ten businesses surveyed – close to 45% – rated balancing the 2013-14 budget as being a lower priority than reducing the company tax rate; increasing infrastructure spending; lifting expenditure on workforce training; and improving incentives for research and development,” said Willox. “A relatively small proportion of businesses surveyed (16%) nominated a balanced budget as a higher priority than these other, nation-building objectives.”
The Ai Group has the following list of areas it wants to see budgetary action aimed at:
- Reducing the company tax rate to 25%;
- Lifting business innovation and capability including by rebalancing incentives in Publicly Funded Research Organisations and introducing a programme of collaboration vouchers for SMEs. Ai Group is also seeking a recommitment to ensure the new R&D tax incentive is effective;
- Ensuring that the existing financial assistance arrangements for industries impacted by the carbon tax are retained; and
- Aligning Australia’s carbon price with those in major overseas markets sooner rather than later.
Wayne Swan, Treasurer and Deputy Prime Minister, had hinted at a corporate tax cut last year, but ultimately that never materialised, with Swan laying the blame at the feet of his political rivals.
“Just to put this into context, we did propose a tax cut but incredibly it was blocked by the Liberal Party,” Swan told International Tax Review in an exclusive interview in November.
Swan has pointed out his willingness to engage with the business community, highlighting the move to introduce loss carryback measures.
“On the business side of things, we put in place as a consequence of our tax forum a year or two ago loss carryback recognising there are firms who can be hit by sudden changes in conditions and loss carryback is one way to respond to that for a firm that’s got a view further out that they’re going to do a lot better,” he said. “That’s been introduced. But we’re always willing to work with the business community on issues of tax reform.”
But while the Ai Group survey shows business hankering for a corporate tax cut, and Swan’s comments suggest openness to implementing business-friendly tax reform, the results of an Essential Poll survey indicate the Australian public wants to see increased taxes on big corporations. This sentiment may in part be driven by the efforts of David Bradbury, Assistant Treasurer, who has been keen to hold big companies to account for the tax contributions they make.
The country has suffered from a revenue shortfall in the corporate tax area and the Business Tax Working Group (BTWG) last year recommended a number of options for raising tax on business. With pressure from both sides, the headline rate may remain unchanged, though Swan is likely to unveil reforms to the thin capitalisation and exploration tax regimes.
Budget measures
The budget is likely to see a revision of the thin capitalisation rules, which the BTWG previously described as “overly generous”. The existing allowable ratio of debt-to-equity of 3:1 is likely to be replaced by a ratio of 1.5:1.
And there is good news on the exploration front, with the government looking unlikely to remove the immediate deduction for exploration expenditure, as had been previously touted. The BTWG proposed a number of options for reforming the tax treatment of exploration. Scrapping the immediate exploration deduction for big companies would have raised A$2.1 billion ($2.1 billion) over four years, according to the group’s analysis.
Other countries, such as Canada and the UK, offer a 100% upfront deduction for exploration expenditure, leading to claims that watering down the tax break would put Australian companies at a competitive disadvantage.
R&D tax incentive
A consultation period is underway regarding draft legislation to target access to the research and development (R&D) tax incentive. The proposals mean companies with aggregate assessable income of A$20 billion ($20.4 billion) or more would no longer be eligible to access the 40% non-refundable tax offset.
The closing date for submissions, which can be sent to randdtargetingaccess@treasury.gov.au, is May 20.
