Australian tax rates above OECD average: KPMG
10 February 2014
Posted by: Author: Nassim Khadem
Author: Nassim Khadem (Financial Review)
Australia has one the highest personal and corporate tax rates in the OECD, new research has confirmed, re-igniting calls for wide-ranging tax reform.
KPMG research shows that our 30 per cent corporate tax rate and 45 per cent personal income tax rate are higher than the Organisation for Economic Co-operation and Development average of a 25.32 per cent for companies and 41.51 per cent for individuals.
While the Coalition has pledged to reduce the company tax rate by 1.5 percentage points to 28.5 per cent from 2015, Australia is still behind most other nations when it comes to company tax.
Ireland continues to offer the lowest corporate tax rate in the OECD, at 12.5 per cent, which has sparked global debate about whether multinationals such as Google and Apple will continue to channel profits into low-tax countries. The issue of tax paid by multinationals – base erosion and profit shifting – will be the focus of the finance ministers’ meeting in Sydney next week, and G20 summit in Brisbane in September.
KPMG’s national corporate tax leader David Linke said Australia’s high corporate tax rate was essentially a tax that deterred foreign investment.
"It’s a disincentive to invest, and if we do not do something about it, foreign capital will go elsewhere,” he said.
All the nation’s major business groups are calling for tax reform in their pre-budget submissions.
The Australian Industry Group submission says a range of "highly inefficient” state taxes including stamp duty and payroll tax need to be reviewed.
The Institute of Public Accountants also argues in its pre-budget submission that inefficient taxes levied by federal, state, territory and local governments should go.
The Henry Tax Review identified a large number of inefficient taxes such as stamp duty and payroll tax, but its terms of reference excluded increasing the scope and rate of GST.
"The exclusion of the GST represented a missed opportunity to tackle the big issues confronting our tax system,” the IPA submission says. "Any serious overhaul of inefficient and market-distorting state taxes such as stamp duties or insurance taxes brings with it a need to replace foregone revenue.”
But Mr Linke said even if the government lifted the GST rate and broadened its application, this would not generate enough revenue to make substantial cuts to personal income tax and corporate tax. Mr Linke said all taxes needed to be reviewed if the Abbott government was serious about lowering corporate tax and personal income tax.
"GST can’t fill the hole,” he said. "You need to look at broad range of things such as whether or not you should change the way we tax land or exemptions we give for property.”
Treasury figures show tax breaks on capital gains and superannuation are the biggest cost to the Commonwealth budget, amounting to more than $60 billion.
CPA Australia’s pre-budget submission recommends the company tax rate be reduced, in stages, to 25 per cent and an increase in the rate of GST and broadening the base to help provide personal income tax cuts. "It should be a key aspirational goal that Australia’s top individual income tax rate be progressively reduced to 40 per cent,” the submission says. "Most Australian businesses are both small and unincorporated and are therefore taxed at individual marginal tax rates and not the corporate tax rate. A cut in personal income tax rates is not only a benefit for salary earners, it is also a cut in tax for Australian small business.”
A 2011 study by KPMG showed that removing inefficient taxes, such as those on insurance, motor vehicles, conveyancing, and payroll tax – paid for by raising the GST – would increase overall economic activity.
This article first appeared on afr.com.