iscoverFollowing the Productivity Commission’s sweeping tax reform proposals, business advocates are pushing for a more holistic approach to reduce the burden on larger businesses.
‘The devil will be in the details’: Concerns raised over tax reform proposal
05 August 2025
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10 minute read
The Productivity Commission’s recent interim report has recommended that the corporate tax rate be cut to 20 per cent while increasing the burden on the biggest companies with an additional 5 per cent cash flow tax.
Business advocates welcomed the relief for small to medium businesses the cut would provide, yet believed there were more sustainable and holistic approaches that wouldn’t detrimentally affect larger businesses and apply increased pressure to the cost of living.
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CPA Australia said the Productivity Commission’s proposal to cut the corporate tax rate was “groundbreaking” and added more fuel to the public debate on tax reform, yet was sceptical that an increased tax burden on large companies would lead to a more dynamic and resilient economy.
Chris Freeland, chief executive of CPA Australia, said the Commission’s “audacious” proposal would reinvigorate the tax reform conversation ahead of the upcoming Economic Reform Roundtable; however urged the government to “look beyond the Commission’s narrow recommendations and take a more holistic view of tax reform”.
“Comprehensive tax reform is fundamental to improving productivity and growth. Any changes to corporate tax rates should be considered and modelled as part of broader reforms, including personal income tax and GST.”
“A reduction in business income tax for small and medium-sized businesses would be beneficial to those businesses, but increasing the tax burden on the country’s biggest employers with an untested cashflow model is unlikely to stimulate economic growth. In fact, it could have an adverse effect.”
Freeland flagged the concern as he noted the impact the tax system had on the broader economy, with a well-designed tax system being able to stimulate economic growth, improve productivity and have wider benefits, while a poorly structured system could put a “handbrake” on progress and undermine international competitiveness.
According to CPA Australia, the Commission’s proposal to introduce higher taxes on the largest companies was at odds with the objective of the productivity reforms, and it was important that the tax system did not create barriers to deter capital investment in Australia.
Freeland said one of his main concerns about the proposal to introduce cashflow taxation was the addition of another layer of complexity to the tax system.
“The proposals to add cashflow-based taxation to all companies raise myriad issues that will need careful attention, including the interaction with franking credits, treatment of carried-forward losses, and the true effective tax rate for all businesses. This creates significant uncertainty around the new cashflow tax,” he said.
“Any reforms must ensure our tax system is attracting rather than repelling investment. High tax rates combined with complex rules are only going to make Australia a less-attractive place to invest and do business.”
Despite the concern, CPA welcomed the proposal to alleviate the regulatory burden on businesses by reducing red tape and creating a critical pathway to future regulation setting.
Luke Imbriano, tax partner at Corrs Chambers Westgarth, said the opportunity for meaningful tax reform was clearer than ever.
“In a world marked by uncertainty, Australia’s institutional strength, regulatory consistency, and history of innovation remain compelling drawcards. The challenge, however, is striking a balance between reforming the current tax system, without making Australia an unattractive investment destination,” he said.
“The Productivity Commission’s proposed corporate tax changes will be welcomed by SMEs, however, they may have unintended productivity and investment outcomes for some of Australia's largest corporations – think mining and energy, infrastructure and property, large retailers and supermarkets. As is always the case, the devil will be in the details.”
The Australian Chamber of Commerce and Industry (ACCI) also welcomed the recognition to cut taxes on SMEs, but also questioned the intent to tax large businesses to fund it.
ACCI added that this recommendation was also questionable, as it would be positive and apply to some small businesses, but not al,l as most were not classified or identified as companies.
Andrew McKellar, chief executive of ACCI, said this proposal created winners and losers, and any net impact on productivity and competitiveness would be diminished as a result.
“While the idea of a net cash-flow is worth considering, it has yet to be applied in practice and would result in a more complicated, multilayered business tax system. The Commission’s self-imposed revenue-neutrality constraint has meant that its proposed tax cuts have to be paid for by increases in taxes on other businesses, which would be of concern,” he said.
“Sound fiscal management is needed to limit spending growth and return the budget to a more balanced setting over the long term. The Productivity Commission is correct in identifying the need to enhance incentives for investment, and we will closely examine these proposals to understand the full implications.”
The Business Council of Australia also weighed in on the level of concern expressed over the Commission’s proposal, highlighting that increasing taxes would risk worsening the cost of living for all Australians.
“These changes would only further complicate our tax system with more red tape and place more pressure on Australia’s cost of living problem,” Bran Black, chief executive, said.
“This proposal fails to acknowledge the role larger businesses play in bringing investment into Australia and the positive flow-on effect that has for workers, small businesses and consumers.”
“The road to a more competitive tax system and better productivity growth is not through adding another company tax system. This is a package that has been designed around one tax, when we really need to have a discussion about holistic tax reform that works for the entire economy.”
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