“It’s all over red rover” as the Business Tax Working Group gives up

The Business Tax Working Group met for the last time yesterday bringing an end to the push to cut company tax.

The group was formed by Treasurer Wayne Swan in October last year but suffered a blow when the promised cut was abandoned in this year’s federal budget.

Last week the Business Tax Working Group released its draft report, which failed to find any way to deliver a company tax cut.

The nine member group was unable to identify any concession to pay for a “revenue neutral” cut and found that to obtain significant benefits a cut of 2% to 3% would be required, at a likely cost of up to $5 billion a year.

The Business Tax Working Group had its last telephone conference last week and after less than two hours it decided to make no changes to its draft report.

Chris Jordan, head of the Business Tax Working Group, told SmartCompany the meeting spelled the end of the group.

The Business Tax Working Group was always due to give its final report by Christmas and, given the nature of the final report with no recommendations for a cut to the rate, Jordan says the group put the draft out last week and had a meeting yesterday where it discussed the feedback on the report and agreed there was no reason to change it.

Jordan says the end of the group means the end of the push for a company tax cut, in the short term at least.

“We tried to make it clear in our report that there is a journey that needs to continue and that is a long-term journey and it is one people need to be somewhat patient about. The company tax rate needs to be cut but when budgetary circumstances allow,” he says.

Jordan advocates the goal of a company tax rate of 25%.

“Currently, budgetary circumstances make it extremely difficult to do this in the short term, but  a rate cut of 2% to 3% is a goal we should all be working towards,” he says.

Institute of Chartered Accountants tax counsel Paul Stacey told SmartCompany “it is all over red rover and the end of the line” for the group.

“If the Business Tax Working Group was not going to take any more consultations or commission then it is a logical outcome to call it a day,” Stacey says.

“That does not mean the challenges Australia faces go away or the need to broaden our tax base or to modernise our business tax systems.”

Stacey says the need for a company tax cut is just as strong today as it was when the Business Tax Working Group was formed. It just becomes a question of how best to best push the case for a tax cut going forward.

He says the reason the group was not able to make a recommendation was because it had to recommend options from within the business tax system to fund a company rate tax cut and “there was just not enough juice in the engine for that”.

“It does put in perspective another reason why returning the budget to a surplus is important,” Stacey says.

He says the history of significant tax reform in Australia shows that you need a surplus to compensate the losers and if you go back to the introduction of the GST, which is arguably the most significant recent tax reform, in the year before the GST’s introduction the budget surplus was $11 billion and $8 billion was spent compensating the losers from the GST’s introduction.

“Tax reform always means winners and losers and the failure to reach a resolution just reinforces those old lessons and the importance of a return to a genuine surplus,” Stacey says.

Is Australia’s company tax burden just a myth? Read our feature today to find out why corporate finance expert Professor Kevin Davis thinks it is.