Industry bodies continue backlash against ‘experimental’ net cash flow tax

On 19 December, the Productivity Commission (PC) released five final reports following its 2025 productivity inquiry. These contained 47 recommendations to support productivity growth, which was declared a national economic priority in early 2025 following a decade of stagnation.

One such recommendation included adjustments to the tax system. The Productivity Commission proposed that Australia should adopt a ‘hybrid’ corporate tax system, with a 20 per cent income tax rate for businesses earning up to $1 billion annually, 28 per cent for larger firms, and an additional 5 per cent net cash flow tax for all companies.

The cash flow tax would apply to company profits, but enable companies to deduct capital expenditure costs, which the PC said would boost corporate investments.

While the Productivity Commission said this mix of changes would increase gross domestic product (GDP) by $13 billion (0.7 per cent), industry bodies aren’t convinced.

CPA Australia tax lead Jenny Wong raised “serious concerns” with the cash flow tax proposal, warning it would introduce unnecessary complexity, increase compliance costs and ultimately cost customers.

“The cash flow tax is not simplification – it’s a radical, untested experiment that introduces multiple layers of complexity,” she said. “This additional tax will create uncertainty and confusion for taxpayers and advisers alike.

“This complexity will drive up compliance costs, increase administrative burdens and make Australia’s tax system harder to navigate for businesses already struggling with red tape.”

CPA warned the proposal would impose a new tax structure alongside existing arrangements, increasing complexity and burdening Australian businesses.

“Australia already has one of the highest corporate tax rates in the developed world at 30 per cent. Now the Productivity Commission recommends increasing this to an effective company tax rate of 33 per cent and reducing dividend imputation credits. Adding another layer of complexity – and higher taxes – sends entirely the wrong message to investors and risks driving capital offshore,” Wong said.

“By attacking the strongest businesses today with higher taxes, we weaken the entire economy. Small businesses and consumers will ultimately pay the price in the form of higher costs and reduced growth.”

CA ANZ similarly rejected the cash flow tax proposal.

“We support a move to a more efficient mix of taxes, but we remain concerned about the introduction of a cash flow tax,” CA ANZ group executive Damian Ogden said.

“CA ANZ supports a system that encourages rather than hinders investment in Australia, rewards innovation and supports sustainable growth.”

In a joint statement released by the Business Council of Australia (BCA), a group of industry associations, including CA ANZ and CPA, warned that the proposed cash flow tax was “experimental” and would increase inflation, reduce investment and slow economic growth.

However, PC deputy chair Alex Robson reiterated that the cash flow tax delivered the biggest bang for buck out of the policies modelled throughout the commission’s review.

“Having modelled and refined this proposal further since our interim report, we are confident it is the best revenue-neutral option for improving investment,” Robson said.

“We have also modelled and explored alternative corporate tax reforms that would boost investment but come at a cost to the budget if not paired with other revenue measures.”