Australia’s high corporate tax rate is a major hurdle for Australian economy

When considering whether to enter a market for prospective business ventures, it is wise to see what additional taxation or fees are involved to be sure all costs are accounted for. Australia, while appearing very open and receptive to foreign companies, does have some pitfalls that companies have to consider before entering the market. One such consideration is the high corporate taxation rate that currently exists in Australia. In fact, many individuals consider the high corporate taxation rate in Australia to be quite detrimental to the economy.

In order to learn more about the high corporate taxation rate in Australia, review the information below:


Important Information about Australia’s Taxation Rate

In a surprising statistic, Australia has the third highest corporate taxation rate in the world. In fact, senior policy makers within Australia are under tremendous pressure to re-evaluate the high corporate tax rate’s implications on the Australian economy. One fascinating factor about the Australian corporate rate is that Australia continues to tax quite highly when compared to other first world countries, which is going against the trend of developed countries slicing their corporate taxation rates. What is surprising about the Australian government’s prior policy on corporate taxation is that it was more closely aligned to that of developing nations than developed countries.

Given Australia’s elite status in the international community, many economists are surprised at the lack of shift when it comes to Australian corporate taxation. For example, the United States decreased their corporate tax rate when Donald Trump was elected President. Between the years of 2000 and 2018, the average tax rate worldwide has fallen by 7.2 percent. Previously, the global tax rate was situated at 28.6% and is now at 21.4%. Thus far, the Morrison government is cutting the corporate tax rate to 25% from 30% to be effective in 2021 for firms that have a turnover of up to $50 million; however, where these cuts are flawed is that they do not extend to businesses that have a turnover of over $50 million, which will still be taxed at 30%


How Is the Corporate Tax Rate Calculated Exactly?

The Australian corporate tax rate is calculated by ascertaining what the net income a company obtains in the fiscal year. In making the calculation, there are benchmarks used for corporate income. Revenues that are obtained from the corporate tax rate are important sources of additional income for the Australian government. From the years between 1981 and 2019, the corporate tax rate within Australia have ranged between 30% and 49% respectively. The current corporate taxation rate for all entities is 30%, which is infinitely above the global average of 21.4%. Even with the new provisions in place to lower businesses that have a turnover of up to $50 million at a corporate tax rate of 25%, it is still substantially higher than the global average while simultaneously creating a two-tiered system influencing larger corporations to have higher fees, which limits more job creation. Companies within Australia have to bear these changes in mind to decide how these high corporate taxation rates will implicate their bottom line and potential for expansion.


What Implications Does a High Corporate Tax Rate Have on the Economy?

One of the key benefits of lowering the corporate tax rate in any economy is that it removes barriers to investment and jobs. The reason for this is that firms have the opportunity to use the additional percentage of corporate taxation they would have to pay for more investment opportunities or job creation. In Australia, there is a two-tiered taxation system that has economists concerned due to the risk of distortion between the two tiers of businesses since the current system shows a preference towards smaller firms.


Concluding Remarks

The Australian corporate taxation rate is still surprising even given the upcoming reforms that are set to be put in place in mid-2021. The reason for this is that Australia is, on average, still having a corporate taxation rate that is ranging between 9 to 10 percent higher than the global average. Australian policy makers need to look at taking a gradual approach of implementing corporate taxation policy changes so that the Australian economy has ample time to adjust. That said, the next policy objective should look to the larger corporations who are still being taxed at the rate of 30%. By doing so, the larger corporations in Australia will still continue to have job creation and investment at a higher rate in the years to come. This success will positively benefit the lives of Australians who will enjoy better jobs, higher salaries, and more opportunities to grow entrepreneurial ventures of their own. It will be interesting to see how the corporate tax rate in Australia changes in the coming years given the global trend of developed countries to substantially lower their corporate tax rates.