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Business equity deduction could fix taxes and boost investment: report | Canberra time

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Australia’s corporate tax system is unsustainable, but neither of the two most-proposed solutions – cutting the corporate tax rate or introducing an investment allowance – would deliver meaningful reform, according to a new report from the Australian National University. Serious systemic problems in the tax system highlighted by the report also include the gap between the corporate tax rate and the top personal income tax rate, a debt bias and a negative impact on investment, says the report. Australia could solve these problems with a small tweak to its tax system with the introduction of an equity allowance, or ACE, according to report authors Kristen Sobeck, Professor Robert Breunig and Dr Alex Evans writing for the Tax and Transfer Policy Institute in the Crawford School of Public Policy. They explored but ruled out alternative reforms, including a general business income tax, a business capital deduction and a cash flow tax. “ACE is an additional tax deduction given to companies that expand their capital base with investments,” Professor Breunig said. “Not only will an ACE increase levels of investment in Australia, including new funds from overseas, but it will also reduce Australian corporate debt exposure.” Such a deduction would encourage companies to invest and allow companies to make more profits before they start paying taxes, he said. “The deduction can be seen as providing a tax-free zone for corporate profits.” READ MORE: If tied to the current government bond rate, companies would receive $21,000 to offset their tax bill for every million dollars invested in stocks. However, this would attract $6,300 in taxes under the current system, leaving only $15,700 – a lower rate of return than a free government bond. “Currently, companies are better off borrowing $1 million than investing $1 million in capital,” Dr. Bruenig said. He added that by making investments attractive in industries that generate lower profits than mining and banking, Australia’s economy will become more diverse and complex – and help buffer Australia from shocks. global. “An ACE is also a better solution than reducing the corporate tax rate. While this could stimulate investment, a reduction would also generate undesirable results, including aid to foreign investors and damage to the tax system. on personal income.”