MEDIA RELEASE: Australia threatened by Trump tax plan - The Centre for Independent Studies
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MEDIA RELEASE: Australia threatened by Trump tax plan

cis logo 640x360The US tax changes proposed by President-elect Donald Trump will be a major threat to Australia’s competitive position, according to a Centre for Independent Studies economist.

CIS Research Fellow Michael Potter says Australia “has been complacent about its company tax burden.”

“A frequent argument is that we don’t need to do anything because the US Federal company tax rate is 35%,” he says.

“With the election of Donald Trump, this argument is collapsing. Instead Australia is going to be ‘trumped’ by a highly competitive US company tax rate — potentially as low as 15%.

“The average OECD company tax rate is 27%, weighted by country size: the Trump tax cut will slash this average to 20%. Australia will still be uncompetitive even if we cut our company rate to 25%.

“A company tax rate of 25% will be too high, not too low.

“The US is the largest investor into Australia, and US companies reportedly have over $3 trillion stashed offshore, including in Australia, for tax reasons. A 15% tax rate will encourage US businesses to repatriate these funds. In a worst-case scenario, there will be a major capital outflow from Australia.

“Trump’s plan will mean Australia will have a tax burden on companies that is more than double the developed world average as a share of the economy.

“Australia’s personal tax revenue will be 2.6 percentage points above the developed world average.

“And Australia will become a high-taxing country in 2020, even if we go with the (debatable) view that Australia’s total tax burden is currently below average.

“We are already seeing the adverse effects of this uncompetitively high tax on investment, with non-mining business investment currently at recessionary levels. It will get worse if nothing is done.

“This should be a major shakeup to Australia’s lethargy. No reduction in company tax since 2001 is no longer good enough.

“At a minimum, Parliament needs to commit to the legislation currently before it to implement a 25% company tax rate.

“But even this may not be enough, particularly if President Trump is able to implement a most or all of his tax reform program,” Mr Potter said.

Michael Potter is a Research Fellow in the Economics Program at the Centre for Independent Studies and author of the CIS research reports Fix it or fail: Why we must cut company tax now and The case against tax increases in Australia: the growing burden