Australia’s ‘unequivocally poor’ corporate tax ranking sparks calls for reform

Australia’s corporate tax system ranked 29th place in the Tax Foundation’s 2025 international tax competitiveness index. The ranking compares the tax competitiveness of the OECD’s 38 member countries.

Despite being an improvement from its 2024 ranking of 32nd, RSM said Australia’s position was still “unequivocally poor” and reinforced the need for holistic corporate tax reform to enhance competitiveness, neutrality and productivity.

“Australia’s high corporate tax rate is inefficient and an impediment to productivity,” Liam Telford, national tax technical director at RSM Australia, said.

“Maintaining a high corporate tax rate in Australia serves to deter foreign companies from entering Australian markets, challenging incumbents, and increasing competition. In practical terms, this suppresses productivity and, ultimately, employment levels and real wages”.

RSM warned that Australia’s high corporate tax rate was dragging down its productivity growth, which had been stagnant over the past decade outside of a pandemic-related spike.

The Tax Foundation pointed to three specific issues undermining Australia’s tax competitiveness. Firstly, its tax treaty network was limited, consisting of just 48 countries compared to the OECD average of 76.

Secondly, its 30 per cent corporate tax rate was well above the OECD average of 24.2 per cent. Furthermore, corporations’ limited ability to write off investments worsened Australia’s tax standing.

Citing research from the OECD, the Tax Foundation said that corporate taxes were among the most harmful to economic growth, while personal income taxes and consumption taxes were less harmful. Taxes on immovable property had the smallest impact on growth.

Telford pointed to Productivity Commission research, which found that lowering Australia’s corporate tax rate could boost investment and productivity.

“The Productivity Commission’s interim report, released at the end of July, expressly recognised that lowering Australia’s headline corporate tax rate will increase investment in Australia, for example by lowering companies’ before-tax hurdle rates and increasing retained profits available for reinvestment,” he said.

Outside of corporate tax, Australia ranked a respectable seventh place in the overall tax ranking, and second place in its property taxes.

However, Telford warned that Australia’s continued overreliance on personal income tax left the country's fiscal position vulnerable to demographic change.

“There are also significant issues pertaining to instability (i.e., sensitivity to the business cycle) and vulnerability to demographic change, as well as the possibility of high income tax rates motivating individuals’ expatriation or emigration,” Telford said.

“It is no secret that tax reform has failed to neutralise bracket creep in Australia or that our tax system is over-reliant on personal income tax. If Australia is to achieve its vision of having a highly dynamic and resilient economy, this must be redressed. This is also important in the context of the prevailing cost-of-living crisis.”