So, the Opposition has reannounced a promise to cut the company tax rate by 1.5%, from 30% to 28.5%. For big business, the pledge will effectively see their company tax rate stay the same under a Coalition government, as they are facing a 1.5% “levy” (aka a tax on business) to fund a paid parental leave scheme. Small businesses, however, will get a tax cut as they are unaffected by the PPL levy.
There has been some fuss from Labor as to whether the Coalition’s announced spending cuts will “pay for” the tax cuts. Tim Colebatch thinks not. Either the Coalition plans more debt and deficit than Labor, or they’re going to cut something else at some point to pay for their tax cut.
It’s of course tempting to just treat such an announcement as the conservatives looking after their core constituency, but people other than rank Tories have argued for the corporate tax rate to be lowered. In the announcement, Abbott pointed to the Henry tax review, which recommended that the corporate tax rate be cut to 25%.
Nick Gruen, longtime econoblogger, is a longstanding supporter of cutting corporate tax rates. It’s an old link, but I don’t think he’s changed his view. But if you want a more detailed explanation, the Henry Review devotes a whole chapter to company tax, and argues that decreasing corporate tax levels could increase investment in productive capacity in Australia, particularly from foreign sources.
However, as Quiggin pointed out at the time, the problem with this notion is that while the increased investment might lead to an increase in GDP, that increase in GDP may mostly be in a form that doesn’t increase the net welfare of Australians. I recommend you read his post in full rather than having me trying to summarize why.
In any case, my guess is that any effect on foreign investment would be largely cancelled out by the fact that big foreign investors will be paying the PPL levy, and so for them the announcement just brings the investment decision back to the status quo.