The complacency about Australia’s tax burden is getting a shake-up with the election of Donald Trump as the next US President, particularly with his proposal to cut the US company tax rate from 35% to 15%.
The average OECD company tax rate is currently 27.3%, when weighted by country size (as CIS has previously argued the weighted average is a better way to analyse country averages). The Trump tax cut will slash this average to 20.3%, well below Australia’s current rate of 30%.
This will hit Australia, and hit us hard, because the US is the largest investor into Australia. US businesses will repatriate their vast offshore funds (reportedly worth $3.1 trillion) back to the US, or move them into lower taxed countries. And the proposed cut in our company tax rate to 25% may prove to be too little, not too much.
If Trump’s plan is implemented, Australia’s company tax revenue as a share of the economy (currently 4.9%) will be more than double the developed world average (of 2.2%), and will still be well above this average even if imputation and Australia’s proposed company tax cut are deducted. Similarly, Australia’s personal tax revenue will be 2.6 percentage points above the developed world average after Trump’s personal tax cuts.
Australia’s overall tax burden is already above the developed world average if IMF figures are used, but will be much more so if Trump’s tax package is implemented in full. However, the Left prefers OECD figures which have Australia’s tax burden below the developed world average.
But this data will no longer provide comfort to the Left: with the growing Australian tax burden, plus the Trump tax cuts, I estimate the Left’s preferred measure will have Australia going above the OECD average in 2020.
Australia will become a high taxing country. I wonder if the Left will welcome the growing tax burden, or will mourn the loss of their (dubious) debating point.
But debating points shouldn’t be the focus: what instead should concern all Australians is the potential for a further, major decline in Australia’s competitive position — a decline that will harm us all.
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