In December 2017, the US legislated through large tax cuts which reduced their company tax rate from 35% to 21%. With the UK company tax rate sitting at only 19%, it’s inevitable Australia must eventually follow suit and reduce our 30% company tax rate. Of course, this is something Malcolm Turnball’s Liberal Government has been trying to get enacted into legislation for the last 2 years.
Although physically Australia is an island and separated from the rest of the world, electronically it’s very much connected. The world is now super connected, and capital quickly flows around the world almost without restriction. With a large current account deficit, Australia is very dependent on overseas capital to fund our economy, invest in our businesses, and create jobs.
Without a doubt, if Australia’s company tax rate stays at the current 30% rate, then future overseas investments in Australia will be impacted and reduced. The exact effect is unknown, but what we can safely assume is that some overseas investments in Australia will not be made. Instead, the capital will flow to other more attractive countries – maybe Estonia, with their 20% company tax rate on distributed profits. Undistributed profits are not taxed.
Will foreign companies still invest in Australia? Of course, but many investments will be structured to avoid paying Australia’s 30% company tax rate. Amazon, for example, is currently investing $1 billion into Australia and will not be concerned with Australia’s 30% company tax rate. Why not, they have a history of paying little or no tax anyway.