Mining Industry Opposes Proposed Australian Hybrid Corporate Tax System
The Australian government’s Productivity Commission is proposing a hybrid corporate tax system in accordance with the Productivity Commission Act 1998.
In a report called “Creating a More Dynamic and Resilient Economy Inquiry,” the commission says that the key levers the government has to improve dynamism and resilience are taxes, spending and regulation.
“We need to update our regulatory approach and change our inefficient company tax system, to a system that better encourages investment and productivity growth” the commission states.
Its proposal is a lower company income tax of 20 percent for small and medium businesses earning up to AU$1 billion, and a tax rate of 28 percent for larger firms. It also recommends a net cashflow tax of 5 percent for all companies.
It says this model for a reformed company tax system could boost investment by AU$10 billion (2.2 percent), GDP by AU$13 billion (0.5 percent) and labour productivity by 0.5 percent in a “broadly revenue-neutral” manner.
“Our preferred alternative reduces tax on normal profits by allowing investment to be partly expensed,” the report notes. “An allowance for new corporate equity would have similar effect, if integrity and implementation challenges can be addressed.”
Australian mining industry responds
While the government believes the new system could have a positive impact, mining industry participants say it poses a risk to the competitiveness of Australia’s resource sector.
In a statement, Minerals Council of Australia (MCA) CEO Tania Constable said mining companies are already under unprecedented cost pressure from industry changes, rising prices and project approval delays.
“The recommendation to shift to a hybrid corporate tax system … would add further to this pressure,” she said.
Constable added that mining is the backbone of the Australian economy, and reduced competitiveness in this sector means fewer jobs for Australians and less support for communities; in her opinion, it could also drive investment offshore instead of growing the minerals sector at home.
Similarly, the Chamber of Minerals and Energy (CME) in Western Australia said the government’s proposal “threatens to torpedo investment” in the state’s resource sector.
CME CEO Aaron Morey argued that the new system risks having the opposite effect of what the government intends, and could damage the country’s ability to attract international investment.
“This ill-conceived, ivory tower thought bubble is an attack on mining and an attack on Western Australia,” he said.
Morey also looked at the situation in numbers, saying that the effective tax rate for most resource companies is already above 40 percent when royalties, payroll taxes and other levies are included.
“That is nearly double the (Organisation for Economic Co-operation and Development) average of 21.2 percent,” he said, underlining that introducing this system would have…
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