Company tax: a cut for some better than a cut for none?

May is Government budget season. This year, 75% of businesses we polled said cutting the company tax rate is their highest priority.

After much debate on this last year, it looks like the Federal Government is finally going to deliver on this wish – but not for all, and not without an unwanted addition to our tax system’s complexity.

The Government is proposing a cut from 30% to 28.5% for companies with turnover under $2 million. The ABS estimates there were 1.9 million businesses with a turnover under $2 million in 2014, or 94% of all businesses registered. This sounds like a lot, but only about a third of small businesses are incorporated, so the majority of the smallest businesses will miss out – as will the 135,000-odd larger businesses with turnover over $2 million.

So this tax cut will mainly benefit businesses in the middle. Even then, the $2 million threshold will become problematic: it will introduce an unwanted complexity and potentially some perverse incentives for companies with turnover just under or over the threshold. So where should we go from here? Is a tax cut for some still better than a tax cut for none?

Share your views below ahead of Tuesday’s Budget night.

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Julie heads the Australian Industry Group’s economics team, producing economics research, comment and policy advice for Ai Group and its members. She is also: Adjunct Professor of Economics and advisory board member at Deakin University; panel member of the Melbourne Economic Forum at the University of Melbourne; and a member of the National Economic Policy Panel of the Economics Society of Australia.

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