The Business Council of Australia says the Productivity Commission's cash flow tax proposal would damage investment, lower GDP and ultimately raise costs for Australian consumers, in a submission to the Productivity Commission.
Business Council Chief Executive Bran Black said BCA modelling showed the new tax would have a negative impact on economic growth, with a hit to GDP of around half a per cent every year.
"Far from boosting growth, a new cash flow tax would drag Australia's economic growth down each and every year, while creating an entirely new system of red tape for millions of businesses," Mr Black said.
"The path to more investment and prosperity for all Australians does not come through an experimental new tax on every business - it is as simple as that."
An Alliance of 24 business and industry groups, which includes the BCA and COSBOA, said the proposal risked Australian consumers and businesses paying more for the things they buy every day-groceries, fuel and other daily essentials.
Mr Black said the proposal to raise the tax rate to 35 per cent for large businesses, while seeking to lift business investment, which remained just above the 30-year lows as a share of GDP set in 2022.
"This is not just bad policy, it is magic pudding economics. Subjecting Australia's largest and most productive businesses to one of the highest tax rates in the world, while seeking more investment into Australia, including for the energy transition and housing, does not make sense."
The BCA's submission to the Productivity Commission's 'Five Pillars of Productivity' inquiry includes new modelling from Deloitte Access Economics showing that if a cash flow tax impacts investment decisions in the same way the current company tax system does, it could reduce economic growth by 0.5 per cent each year (see Figure 1).
Mr Black warned the dual-tax approach was experimental and had been considered and ruled out by New Zealand, Sweden and Switzerland, with Mexico introducing a similar scheme in 2008 before removing it in 2014 after it created heavy compliance burdens, distorted incentives, and fell short on revenue.
"Mexico gave it a shot and decided it wasn't worth the pain - it is clear from global experience that this is an experiment Australia shouldn't take."
Mr Black said the BCA strongly supports the Productivity Commission's focus on cutting red tape and called for a 25 per cent reduction in regulatory costs by 2030.
"Reducing unnecessary red tape is one of the simplest and most powerful ways to unleash new investment, help businesses grow, and help Australians get ahead - we believe federal and state governments should go further with a clear target."
The BCA provided alternative tax proposals for the Productivity Commission and Federal Government to consider, which genuinely drive investment and economic growth, without increasing costs on consumers and businesses, including:
- Full expensing of capital investments, without restricting deductibility of interest, to help drive larger, capital-intensive projects - modelling for the Productivity Commission estimates full expensing with interest deductions, which is revenue neutral over time, could lift business investment 18.9 per cent, productivity 4.8 per cent and GDP around 4.6 per cent.
- A broad-based 20 per cent investment allowance, available to all sectors and firm sizes to support long-term capital investment.
- Modernised R&D tax incentives, with improved support for commercialisation and emerging technologies, that could also deliver growth and be revenue neutral over time.
