Greens endorse net cash flow tax proposal after BCA backlash

At its annual dinner on Monday night (8 September), the Business Council of Australia (BCA) hit back at a Productivity Commission (PC) proposal to introduce a 5 per cent net cash flow tax (NCT), accompanied by company tax cuts.

The proposed changes would result in 99 per cent of companies paying less tax, yet 500 of Australia’s largest companies, including BCA members, would face a tax increase.

In his annual dinner address, BCA president Geoff Culbert warned that any tax hikes would threaten Australia’s international competitiveness.

“Right now, Australia is on the wrong side of the competitiveness equation, and we are losing investment to our overseas competitors. The focus post-Roundtable must be on making Australia more competitive to drive business investment and to raise living standards. That must be the test,” he said.

“Any increase in taxes on business doesn’t pass the test.”

At the dinner, BCA CEO Bran Black also warned that the NCT was “uncompetitive and ill-conceived.”

The idea came from a PC interim report, Creating a more dynamic and resilient economy, which put forward ideas to boost productivity and economic dynamism in Australia.

One recommendation was to cut the corporate tax rate to 20 per cent for businesses with revenue under $1 billion, which would capture most companies operating in Australia. This would see Australia’s corporate tax rate align more closely with the OECD average of 21 per cent, the PC said.

The commission said this tax cut should be coupled with a new 5 per cent NCT. This would apply an additional tax of 5 per cent to company profits, but enable companies to deduct capital expenditure costs, which the PC said would boost corporate investments.

The Greens have slammed the BCA’s negative response to the NCT, accusing it of trying to “veto” the PC proposal to “protect their profits.”

“The BCA doesn't want high climate targets. It doesn't want strong environment laws. It doesn't want action on supermarket price gouging. And now they’re telling Labor to block even the smallest step toward making big corporations pay more tax,” Greens senator Nick McKim said.

“One in three large corporations don’t pay a cent in tax. Many of the rest hide their profits offshore. It says everything that even a modest proposal has sent the BCA into overdrive.”

The ATO’s 2022–23 corporate tax transparency report showed that 31 per cent of large companies operating in Australia did not pay tax.

Almost half (562) of the 1,253 multinationals that paid no tax in Australia did so by incurring an accounting loss, according to ATO tax data analysed by QUT tax expert Kerrie Sadiq.

“Where a deduction is allowed in a high tax jurisdiction, such as Australia, and income is included in the profits of a low tax jurisdiction, such as Singapore, the result is larger overall global profits,” Sadiq wrote for The Conversation.

Accounting firm BDO said that the NCT could incentivise new capital expenditure across the economy, which would allow companies to deduct the full value of their capital expenditure in the year it was made, rather than through depreciation.

It added that the NCT would boost companies' incentives to take risks, because losses would be uplifted for inflation when offset against future tax liabilities. However, the NCT would raise the total tax burden for some large companies, particularly those not undertaking new investment.

While BDO said it saw merits in the PC’s NCT proposal and its ability to boost investment and productivity in Australia, it warned that implementation would need to be carefully executed, with considerations made for its interactions with the existing company income tax (CIT) system.

Tim Sandow, BDO corporate and international tax partner and president of The Tax Institute, warned that the NCT could introduce fresh complexity into Australia’s “already highly complex” corporate tax system.

“The cash flow tax is a really interesting concept. One of the things that we've been advocating for, both through BDO and The Tax Institute, is for big, bold ideas and holistic tax reform. So, we would welcome the Productivity Commission putting forward bold new ideas,” he said.

“My understanding of when the cash flow tax was originally proposed by Ken Henry, it was going to replace other taxes. The Productivity Commission's proposal here is not to replace other taxes, but to add it on as a new tax.

“If you're not replacing other taxes, you're just adding an extra layer of compliance and complexity into the system. Given that this cash flow tax is proposed to apply to all companies, then it's only increasing the compliance burden.”