The Institute of Public Affairs welcomes the opportunity to comment the Productivity Commission’s recently published suite of interim reports that seek to improve Australia’s economic performance.
The IPA would like to offer specific comments on three of the reports, which relate respectively to economic resilience, policies to achieve ‘net zero’, and improving workforce productivity.
Creating a more dynamic and resilient economy
The Commission proposes lowering the company income tax rate to 20 per cent for firms with turnover below $1 billion, which the IPA agrees is a vital step toward improving investment incentives and attracting foreign capital.
The interim report’s modelling suggests that this reform could increase investment by $7.4 billion (1.6 per cent), GDP by $14.6 billion (0.5 per cent) and labour productivity by 0.4 per cent. These findings are consistent with IPA research showing that lowering business taxes directly improves wages and job opportunities.
While we support the Commission’s proposed reduction – and note that with greater spending restraint the rate could and should be lowered further – we caution against setting arbitrary thresholds. Limiting the 20 per cent rate to firms below $1 billion entrenches distortions and creates a disincentive to grow. International experience, such as Ireland’s 12.5 per cent corporate tax rate and Estonia’s 20 per cent flat tax, shows that broad-based reform attracts investment and sustains growth across the economy.
