Why Australia’s Treasurer isn’t sure whether Corporation Tax will still exist in 20 years time

October 14, 2014 9:42 AM

 Will Company Tax still exist in 20 or 30 years' time? Good question. I don't know. But I'd like to find out the answer.

Australia’s Treasurer, Joe Hockey, answered my question with refreshing honesty at a lecture hosted by the Institute of Economic Affairs about the future of corporate incomes taxes (“Corporation Tax” in the UK).

JoeHokey.png

I pointed out the relentless downward pressure on average corporate tax rates in the OECD and how some small countries like Estonia have abolished corporate income taxes, instead taxing distributions of funds rather than profits. Much like our corporate tax proposals outlined in by our 2020 Tax Commission‘s Single Income Tax.

I asked if Australia might be the first big economy to bow to the inevitable and follow suit. After joking that he would indeed announce that he was abolishing the tax at the lecture, he discussed the challenges with relation to corporate and cross border consumption tax issues, including the OECD’s Base Erosion and Profit Shifting initiative.

At some point, the downward pressure on Corporation Tax rates will become too great for a big economy to resist abolishing it entirely. The substantial simplification and transparency benefits, along with the considerable wider economic benefit from effectively removing taxation from investment will become too big relative to the revenue additional revenue it raises in comparison to a tax on distributed earnings.

It’s a pity our politicians are so timid that they would prefer to wait until they have no choice rather than seize the competitive advantage available from being the first country to do it.

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