Morrison’s company tax competitiveness argument fails the evidence test

New research counters argument that Australia must ‘compete’ with other countries by lowering its company tax rates in order to encourage foreign investment.

The report shows that 71 per cent of foreign investment applications come from countries with company tax rates lower than Australia’s rate.

Recent foreign investment flows have increased rapidly from countries with substantially lower company tax rates than Australia’s rate such as Singapore, China and the UAE – which has a company tax rate of zero.

“All of this raises the question – if Australia is already successful at attracting foreign investment why would we give tax cuts to foreigners?” Senior Research Fellow at The Australia Institute, David Richardson said.

“Since the case for cutting company taxes to improve incentives for domestic investors has already been contradicted by research which revealed that Australia’s complex dividend imputation rules would undermine benefits, the Government is seeking to shift the debate on to foreign investment.

“Treasurer Scott Morrison’s new focus is on foreign investment and the claim that company tax rates must match foreign competition.

“But history shows that when Australia’s company tax rates were adjusted in the past foreign investment did not go the way expected. When the rate rose in the 80’s to 49%, there was a rise, not a drop in investment.

“The research shows that Australia’s stock of foreign investment is dominated by 13 countries, some with higher and some with lower company tax rates.  Nine of these countries have lower company tax rates than Australia’s.

“Those making the argument that company taxes need to be cut in order to provide foreign investors greater incentive need to examine the combined effects of the company tax rates and top marginal tax rates across OECD countries. 

When that is done we find:

  • While Australia’s company tax rate puts it among the top countries, the combined company and personal rates put Australia around the middle of the range.
  • Dividend imputation is the main reason why Australia’s combined tax on company income is relatively lower than the company and personal income figures would suggest on their own.
  • The competitiveness of Australia’s company tax system can only be assessed accurately when dividend imputation is properly incorporated into the analysis.

“It’s hard to disagree with Keating when he said: there are no ‘deserving cases out there’,” Richardson said. 

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