Bruce Barbour - this updated version - March 2021
We should not chase the lower rates of other countries, on some
idea that companies will move off shore. Some may but most won't.
Suggested Reform of the Company Tax Structure
I suggest that a company's tax rate be adjusted depending on the
number of people that the company directly employs locally within
Australia. The more they employ, as shown through their total
annual wages bill as a ratio to their profit, then the lower their
company tax rate should be. It would be a sliding scale. For
example, Company A has a local wages bill of $2 million and they
make a profit of say $200K. They might be required to pay a tax
rate of 20% ($40K). For comparison Company B has a local wages
bill of $1 million but still makes a profit of $200K. They might
be required to pay a tax rate of 40% ($80K). (Current company tax
rate is a flat 27.5%, scheduled to decrease to 25% in the next few
years - this is on lower turnover companies. I may make the top
rate payable on company profits approximately the same as the top
individual PAYG tax rate. What the top rate should be would
require further investigation - though the top individual rate may
be found to be too high after analysis.). I said it was a sliding
scale - the company tax rate could even go down to zero for a
company with a very high local wages bill but a low profit.
With this sort of calculus it can easily be seen why it is worthwhile for the commonwealth government to purchase locally manufactured plant and equipment if at all possible, even if it is 20% to 25% more expensive than the overseas manufactured equivalent. The Federal Government would recoup that amount and more from the additional local economic activity and the consequent increased tax take generated. It therefore also ensure that other levels of government - State and Local - also purchase local by providing them with a rebate on their significant local purchases of manufactured goods. Unemployment benefits payable by government would also decrease due to greater employment in the community.
Would this result in some companies keeping greater profits?
Possibly. If they are paying a low tax on profit due to their high
employment level (relative to profit) then prima facie they get to
keep higher after tax profit. But traditional market competition
may mean that they may be forced to lower their profit margins to
maintain market share in the face of their local competitors being
able to cut prices to boost their market share due to the more
favourable tax environment. Over time it may mean that their level
of after tax profit remains about what it was under the flat
profit tax environment. However they will gain a competitive
advantage over rival companies that are mainly sourcing stock by
importing overseas manufactured goods.
I acknowledge that this is a substantial change to the company
tax structure. It would have to be introduced in stages over, say,
5 to 10 years to allow businesses time to restructure their
operations as they see fit to work in with the new tax structure.
It would also mean that there was greater volatility in the amount
of company tax received by government - which may mean government
would need strategies to handle the years of lower tax receipts to
balance them against the years of higher receipts.
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