Donald Trump has announced plans to cut the USA corporate tax rate from 35 per cent to just 15 per cent as part of a wider tax overhaul, which could result in negative implications for Australia according to BDO tax partner Marcus Leonard.
“The US currently has the world’s highest statutory corporate tax rate, and Trump’s proposal to slash the rate from 35 per cent to 15 per cent would certainly act as an incentive to create jobs and boost investment in the US economy,” Mr Leonard said.
“He also proposes to eliminate most business tax subsidies to offset the benefits reaped by the corporate taxpayers. There would also be significant marginal tax rate cuts for individuals.”
Mr Leonard fears that this cut will leave Australia in an even worse position on the global stage.
“In comparison, the relatively high Australian corporate tax rate - even with the government’s recent rate reduction to 27.5 per cent for small to medium businesses - acts as a significant roadblock for investment into Australia as the competition for highly mobile capital increases,” he said.
Mr Leonard emphasised that the total tax overhaul approach being taken by Trump should be replicated in Australia.
“The proposed US corporate tax changes are part of a comprehensive overhaul of many aspects of the US Federal Tax System, which is in stark contrast to Australia’s stand-alone corporate tax rate reductions,” he said.
“Australia needs to follow suit and look at the government’s recently announced corporate tax reductions as the first step of a holistic reform of the Australian tax regime.”
If Australia wants to be competitive on the world stage, it needs to attract capital from global capital markets according to Mr Leonard, who highlighted the direct correlation between the corporate tax rate of a country and the level of cross-border investment there.
“Attracting foreign direct investment is the primary goal of many who advocate reductions in statutory company tax rates,” Mr Leonard said.
“The potential benefits to Australia of greater foreign direct investment include greater labour income through increased productivity and possibly employment and positive externalities or spillovers associated with foreign direct investment, which could improve labour and capital productivity.”