While supportive of the corporate tax rate cuts, the head of the Tax Institute has expressed concern that they may prove detrimental to the bigger tax picture in Australia if done in isolation.
The institute’s senior tax counsel, Professor Robert Deutsch, has told My Business’ sister publication Accountants Daily that he supports the government’s move to lower the corporate tax rate to 25 per cent, but he has two key reservations about the move and its implementation.
“First, the manner in which this is being done brings with it some complex transitioning provisions that are unnecessary and impractical, [such as] what is passive income and changes to the franking rules,” Professor Deutsch said.
“Secondly, reducing the corporate rate but retaining current personal rates will leave a huge gap between the corporate rate and the top personal rate. This will create an environment rife for tax avoidance with the incentive to utilise the corporate rate becoming almost irresistible.”
He said he would like to see the government revisit the issue, with the intent of reducing the top marginal tax rates rather than focusing so heavily on the company tax rate.
“Individual tax rates on earned income are disproportionately and absurdly high relative to both the company tax rate and certain types of passively derived income,” Professor Deutsch said.
“This is a massive distortion in a system which seems to work the wrong way around. We heavily tax, almost to the point of penalising, the earning capacity of individuals, but lightly tax companies (which may, in some cases, be involved with far less productive activities than comparable individuals) and unearned income derived by individuals.”
Professor Deutsch suggested that lowering the personal tax rates in conjunction with the lowering of the corporate tax rates will benefit the system more holistically.
“This could be achieved by broadening the income tax base by reducing the capital gains tax discount and reducing the scope of certain deductions. The top rate should be no more than 37 per cent plus the Medicare levy,” he said.
“These combined measures would make our tax rates more competitive with our major trading partners and enhance Australia’s attractiveness both as an investment and as a work destination.”