The Australian Productivity Commission (PC) has released an interim report proposing a series of changes to the country’s company tax structure, aiming to stimulate business investment and productivity without increasing the federal budget deficit.
The recommendations, outlined in the report “Creating a more dynamic and resilient economy,” focus on lowering tax rates for most companies and introducing a new approach to capital expenditure deductions.
According to the PC’s draft recommendations, the company tax rate would be reduced by up to 10 percentage points for businesses with annual revenue under $1 billion.
Companies with annual turnover below $50 million would see their tax rate fall from 25% to 20%, while those earning between $50 million and $1 billion would have their rate cut from 30% to 20%.
The current 30% rate would remain for companies with revenue exceeding $1 billion.
The commission estimates that these tax adjustments could increase Australia’s gross domestic product by $14 billion over the medium term while maintaining revenue neutrality.
The report also proposed a 5% net cashflow tax, which would allow companies to immediately deduct the full cost of capital investments, rather than depreciating them over time. This measure is projected to spur an additional $8 billion in business investment.
Dr Alex Robson, deputy chair of the Productivity Commission, said the proposed changes are intended to make the tax system more conducive to investment and economic growth.
“If we don’t get our economy moving again, today’s children could be the first generation to not be better off than their parents. We need to spark growth through investment and competition – the best way to do that is to fix our company tax system,” he said.
The interim report also highlighted the impact of regulatory requirements on business activity.
The PC found that the volume and complexity of regulations have increased over the past two decades, creating challenges for businesses across sectors.
For example, the average time to secure planning approval for a house in the Australian Capital Territory is nearly six months, while windfarm projects in New South Wales can take up to nine years to receive approval.
Commissioner Barry Sterland noted that while regulation plays a necessary role, excessive requirements can slow economic growth.
“Regulation is important, but over-regulation is a handbrake on growth. The government needs to cut through the thickets of regulation that are slowing us down and ensure any new regulations are made with growth in mind,” he said.
The report recommends that the federal government publicly commit to reducing regulatory burdens and subject new regulations to more rigorous review.
It also suggests appointing an independent commissioner to enhance the oversight of regulatory impact analysis.
“Government and regulators need to bring a growth mindset to new proposals for regulation by asking how they would affect growth and dynamism in the economy,” Sterland said.
A coalition of Australian industry associations, including the Insurance Council of Australia (ICA), has issued a joint statement responding to the PC’s recommendations.
The group expressed concern about the proposed net cashflow tax, describing it as an untested approach that could increase costs for both businesses and consumers.
The statement argued that while some businesses might benefit from the changes, the overall effect could be higher prices for goods and services.
The industry groups also called for a broader discussion on tax reform, emphasising the need for practical solutions to reduce regulatory complexity and address cost-of-living pressures.
The PC is inviting submissions on its interim report, with a final version expected later in the year.
The report is the first in a series of five inquiries aimed at identifying reforms to enhance Australia’s productivity and economic resilience.
