The Australian Government has tasked the Productivity Commission (PC) to conduct an inquiry into creating a more dynamic and resilient economy. The Government asked the PC to identify priority reforms and develop actionable recommendations.
The PC has now released its interim report, which presents some draft recommendations focused on two key areas:
- Corporate tax reform to spur business investment
- Where efficiencies could be made in the regulatory space (ie, cutting down on red tape)
The interim report makes some interesting observations, and key features of the draft recommendations are summarised below.
Corporate tax reform
The PC notes that business investment has declined notably over the past decade and that the corporate tax system plays a significant role in addressing this. The PC is basically suggesting that the existing corporate tax system needs to be updated to move towards a more efficient mix of taxes. The first stage of this process would involve two linked components:
- Lower tax rate: businesses earning under $1 billion could have their tax rate reduced to 20%, with larger businesses still subject to a 30% rate.
- New cashflow tax: a net cashflow tax of 5% should apply to company profits. Under this system, companies would be able to fully deduct capital expenditures in the year they are incurred, encouraging investment and helping to produce a more dynamic and resilient economy. However, the new tax is expected to create an increased tax burden for companies earning over $1 billion.
Cutting down on red tape
The interim report notes that businesses have reported spending more time on regulatory compliance – this probably doesn’t come as a surprise to most business owners who have been forced to deal with multiple layers of government regulation. Some real-world examples include windfarm approvals taking up to nine years in NSW, while starting a café in Brisbane could involve up to 31 separate regulatory steps.
The proposed fixes include:
- The Australian Government adopting a whole-of-government statement committing to new principles and processes to drive regulation that supports economic dynamism.
- Regulation should be scrutinised to ensure that its impact on growth and dynamism is more fully considered.
- Public servants should be subject to enhanced expectations, making them accountable for delivering growth, competition and innovation.
These are simply draft recommendations contained in an interim report, so we are a long way from any of these recommendations being implemented. However, the interim report offers some insight into areas where the Government might consider making changes to boost productivity in Australia.
The PC is inviting feedback up until 15 September on the interim report before finalising its recommendations later this year.