The taxation of capital in Australia: Should it be lower?

Abstract

Australia has experienced a largely one-sided 'debate' on the case for cutting the taxes faced by business, especially the company tax. The arguments are put forcefully by business people and their lobby groups and those views find echoes in official thinking such as the Henry review of taxation in Australia. This chapter attempts to critique the arguments used for cutting the company tax rate. It points out that in the early post war period the company tax rate was in fact much higher than it is now at 30 cents in the dollar. Yet that period recorded a much better performance in terms of standard measures such as economic growth and unemployment rates. We also find that in terms of economic theory the case against the company tax is very weak and relies on unrealistic views of the world. Many of the arguments such as those that relate to international competition for investment are inconsistent with the facts; the flow of investment into Australia from countries with tax rates lower than the Australian rate is a good example.