Speaking to Accountants Daily, The Tax Institute senior tax counsel Professor Robert Deutsch said the US tax cuts, which saw the rate slashed to 21 per cent from 35 per cent, should spur “careful consideration” of Australia’s competitive position with other jurisdictions.
“Knee-jerk responses to the recent US corporate rate reduction should be resisted,” said Professor Deutsch.
“Nonetheless, a careful consideration of where our rates — both individual and corporate, sit relative to those that apply in other countries and how those rate differentials might impact the Australian economy is essential.”
In its pre-budget submission, The Tax Institute has argued for a unified 25 per cent corporate tax rate to be applied as soon as possible to challenge the rates of other countries such as Hong Kong (16.5 per cent), Singapore (17 per cent), United Kingdom (19 per cent), and New Zealand (28 per cent).
Professor Deutsch also criticised the two-tiered tax rate system, saying the eligibility test for the lower rate of 27.5 per cent has added “unnecessary complications” to the tax system.
“This complexity and disparity stifles potential investment into the Australian economy, and therefore hampers real economic growth,” said Professor Deutsch.
Further in its submission, The Tax Institute has pushed for a reduction in top marginal tax rate for individuals, believing that the current rate is causing a talent drain to other jurisdictions that have significantly lower rates.
“In terms of achieving a more favourable tax environment in which to conduct business, then the corporate tax reductions are more important,” said Professor Deutsch.
“Nonetheless our personal marginal tax rates are too high and need to be revised down such that the top rate is no higher than 42 per cent.
“A tax rate of almost 50 per cent on salary and wage income, as opposed to investment-type income which invariably gets the benefit of lower rates, is simply outrageous,” he added.
“By comparison with other jurisdictions, our current rate structure only serves to drive skilled Australians offshore to more favourable jurisdictions like the US (with a top personal marginal rate of 39.6 per cent), Canada (33 per cent), and New Zealand (33 per cent), not to mention Singapore (22 per cent) and Hong Kong (15 per cent).
“This is a significant threat to the available talent pool — i.e. human capital, in Australia.”