The country’s corporate tax system is unsustainable and needs to be changed urgently, according to a new report.
The report, released by the Australian National University on Monday, found that the current system had a negative impact on investment and a bias in favor of debt.
The study also identified five systemic problems with the current corporate tax system, including a high corporate tax rate, as well as a gap between the corporate tax rate and the lowest tax rate. higher for personal income tax.
The report’s lead author, Professor Robert Breunig, said introducing an “allowance for business equity” would help address flaws in the system.
The allowance is an additional tax deduction that is given to businesses if they expand their capital base with investments.
“Not only will an allowance for corporate equity increase levels of investment in Australia, including fresh money from overseas, but it will also reduce Australian corporate debt exposure,” said the professor. Breung.
“The deduction (of the allowance) will encourage companies to invest, allow them to make more profits before they start paying taxes and make them more financially secure by removing the bias of the current system in favor of debt.”
Such an allocation has been introduced in other countries, with the report noting that companies have become less leveraged and investment has increased under the measures.
Professor Breunig said Australia would reap the benefits if it implemented the allowance and would create more jobs in the process.
“A business equity deduction is also a better solution than reducing the corporate tax rate,” he said.
“While this may stimulate investment, a reduction would also generate undesirable results, including subsidies to foreign investors and undermine the personal income tax system.”
Tying the new allowance to the current government bond rate would mean companies would receive $21,000 to offset their tax bill for every million dollars of equity investment.
Under the current system, an investment that generates $21,000 in pre-tax income will attract $6,300 in taxes, leaving the owner with $15,700.
Companies are currently better off borrowing $1 million than investing $1 million in equity, because they get an interest deduction on their borrowings to offset profits before paying taxes.