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A big four firm has weighed in on the case for corporate tax reform, after surveying found international leaders are finding Australia less attractive than our global counterparts as a place to do business.
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PwC weighs in on tax reform debate as CEOs push Australia aside
25 January 2018
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PwC’s latest CEO Survey found that Australia has dropped out of the top 10 destinations for global capital, falling from 10th position in 2017 to 11th in 2018.
Despite the blip, Australian CEOs outlook improved by 4 per cent to 46 per cent, with the US and China remaining as the top two markets that are most important for Australian organisations’ growth prospects over the next 12 months.
Globally, 57 per cent of CEOs believe global economic growth will improve over the next 12 months, close to double from the previous year, mimicking the upward revision of global forecasts by the International Monetary Fund (IMF).
Optimism in the global economy is feeding into CEOs’ confidence about their own companies’ outlook, with 42 per cent of CEOs claiming they are “very confident” in their own organisation’s growth prospects over the next 12 months, up from 38 per cent last year.
The survey, which interviewed approximately 1,300 leaders from 85 countries, found that a number of factors driving the optimism included the growth in the US economy of around 3 per cent, China’s continued growth at more than 6 per cent, the stabilisation of global commodity prices and a steady recovery in the eurozone.
PwC Australia chief executive Luke Sayers said the results showed the pro-business agenda of the US, which has resulted in significant corporate tax cuts and reduced regulation, is flowing through to business sentiment, not just in the US, but around the world.
“The improved confidence is encouraging CEOs to invest in and grow their businesses with the US reaping the rewards of substantial changes to its regulatory environment and tax system,” said Mr Sayers.
“These results ring another warning bell for Australia – if we want to remain globally competitive and attract investment, we need tax reform, or we are at serious risk of foreign direct investment flows slowing as businesses prioritise investment in the US.
“The future of Australia's economy requires decisive action that will fuel investment and growth. Without it, we risk not only the future prosperity of our current businesses, we almost guarantee that we will not be the home of tomorrow's businesses."
Earlier this week, independent economist Saul Eslake questioned the need to lower the corporate tax rate, believing that the theory of increased investment following cuts had “no guarantee”.
“Businesses make investment decisions for a whole host of reasons, of which the tax rate is only one, so I don't think arguments put forward for Australia to join this race to the bottom in terms of corporate tax rates are all that persuasive,” said Mr Eslake.
“For example, Canada lowered its tax rate from 42 per cent in 2000 to 26.7 per cent by 2015 but the business investment as a share of GDP has been virtually unchanged over that period – it was 20 per cent in 2000, it was 21 per cent in 2017.
“Here's an example where a country similar to Australia, they cut their corporate tax rate and business investment as a share of GDP has barely changed, so it is a respectable theoretical argument that cutting the corporate tax rate boosts investments but it's hard to find evidence that the theory is significant in practice.”
While it seems unsurprising that a large business based in Australia would sound alarms over the case for corporate tax reform, there has been significant support from the mid-tier accounting community to cut the corporate tax rate.
“To be competitive on the world stage, Australia needs to attract capital from global capital markets. There is a direct link between the level and allocation of cross-border investments and the corporate tax rate,” BDO national head of tax Marcus Leonard told Accountants Daily last month.
“Attracting foreign direct investment is the primary goal of many who advocate reductions in statutory company tax rates.
“The potential benefits to Australia of greater foreign direct investment include greater labour income through increased productivity and possibly employment and positive externalities or spill-overs associated with foreign direct investment which could improve labour and capital productivity.”
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