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Government Postpones Corporate Tax Cuts
After shelving its plan to cut the corporate tax rate in the 2012-13 financial year, the Australian Government has stated that it remains committed to cutting the rate in future. Taxand Australia explores the effect of these cuts and the potential impact on businesses in the wider economy.
Following a recent economic forum in Brisbane, the Prime Minister said that the tax cut continued to be an "absolute top priority" of the Government's business tax working group. The previous plan for a two-step reduction to 28% was scaled back to 29% as a result of concessions granted during the negotiation of the Mineral Resources Rent Tax, and then scrapped entirely in the May Federal Budget.
The Henry Review of 2010 recommended a more significant reduction to 25%, which was intended to be "on the lower side of the average rate in small and medium OECD economies".
The objective of this recommendation was to encourage investment in Australia, particularly from highly mobile foreign direct investment. Looking at the current spectrum of corporate tax rates in OECD economies, Australia's rate is higher than average (particularly if one excludes the larger economies of United States and Japan). Even if Australia does cut its rate to 29%, it is likely that the rate would remain on the high side. In contrast, the UK is proposing to reduce its rate to 22%.
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