Business wants tax cut but not at any cost

9 Aug 2012, 3:38 pm   -   Source: AAP

Business groups are keen for tax relief, but not at the expense of programs that benefit the corporate sector.

Business groups welcome new prospects for a corporate tax cut after this year's false promise, but they fear it could come at a painful cost in other areas.

The federal government's business tax working group is expected to recommend a cut in the corporate tax rate to 28 per cent, from 30 per cent, to support productivity and wage growth.

The working group, formed after last year's Labor-hosted tax forum in Canberra, is examining ways to pay for a reduction.

It's scheduled to release a discussion paper this month ahead of a final report in December.

"This government has said repeatedly ... that we want to cut the company tax rate," a spokesman for Treasurer Wayne Swan told AAP on Thursday.

This will happen "if that's what the business tax working group recommends, if it has the support of parliament and if the group agrees on savings ... that fully offset the cost."

The Australian Chamber of Commerce and Industry (ACCI) supports a reduction because the nation's corporate tax rate is well above the OECD average of 25 per cent but doesn't want it to come at the expense of changes to business tax incentives.

"Our strong view is that reductions should be funded by expenditure savings rather than stripping away taxation arrangements from other areas of the business tax system," ACCI director of economics and industry Greg Evans said.

"Business is also sceptical (about) when and if a company tax reduction may be delivered, as it was previously announced, then scaled back and finally withdrawn in this year's budget."

Labor's May 2012/13 budget scrapped a promised reduction in the tax rate to 29 per cent that was to be funded by the government's mining tax, after the opposition declined to back the legislation because it did not agree with how it would be achieved.

But in June, Prime Minister Julia Gillard announced cutting corporate tax would be the business working group's top priority after getting the message "loud and clear" from business at an economic forum in Brisbane.

The Australian Industry Group supports a program of reform to reduce the company tax rate to 25 per cent, as was recommended by the Henry tax review, to lift investment and productivity.

But it's concerned the trade-off might involve a reduction in the research and development (R&D) tax incentive, often used by businesses to upgrade processes and develop technology improvements.

"It is not something that should be pursued at any cost," chief executive Innes Willox warned.

"Right now, Australia needs businesses to undertake R&D like never before.

"The pressures of the high dollar, rising energy prices and the legacy of a long period of poor productivity growth make it imperative that businesses raise competitiveness."

Opposition innovation spokesperson Sophie Mirabella said industry was already facing difficult market conditions.

"The last thing the government should be doing is chopping and changing genuine incentives to innovate," she said in a statement.

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