Industry leaders say the U.S. Trump administration’s push to reduce its corporate tax rate to 15 percent, and impose tariffs on foreign imports, means Australia will need to work harder to compete globally.
President-elect Donald Trump has committed to slashing the U.S. corporate tax rate to 15 percent, following cuts in 2017 of the corporate rate from 35 to 21 percent.
Risks of Capital Flight From Australia
Federal Nationals member for New England, Barnaby Joyce, says that if the United States cuts its corporate tax rate, Australia would be “at risk of capital flight.”“A substantially lower corporate tax rate in the U.S. is a substantially greater return on investment for shareholders. This would certainly draw capital away from Australia,” he told The Epoch Times.
These concerns were echoed by the CEO of the Business Council of Australia, Bran Black.
He said Australia’s corporate tax rate stood at 30 percent, making it the third least competitive jurisdiction from a company tax perspective in the OECD, ahead of only Portugal and Colombia.
A more competitive tax rate, he said, could help attract investment, which in turn would create jobs.
“Indeed, we became a net exporter of capital to the United States, and we remained in that position for five consecutive years, for the first time since 1912. We don’t want to see that situation arise again.”
Pratt Industries is the fifth largest packaging and boxing firm in the United States.
Saul Eslake, an independent economist, also said capital flight was likely, and that it would have an impact on productivity and employment.
Labor Minister Backs Corporate Tax Cut Idea
Industry Minister Ed Husic has long advocated for corporate tax reforms, arguing that tax cuts and investment allowances are crucial to stimulate capital and investment.Despite Labor’s rejection in 2018 of the Turnbull government’s proposal to cut corporate tax rates, Husic believes opposition to such a move is waning.
“I think corporate tax reform and investment allowances must be considered to help unlock investment and capital,” Husic said at a conference earlier this year.
“The conversation about tax rates has to evolve as the economic environment changes.”
Back then when Treasurer Jim Chalmers was asked about Husic’s proposal he said it was “entirely consistent with the sorts of things that we have been saying for some time.”
Chalmers added, “I’m proud to work with Husic to incentivise production and investment in manufacturing.”
Global Tariffs and Impact on Australian Trade
In addition to tax cuts, Trump’s proposed tariffs—up to 60 percent on Chinese goods and up to 20 percent on imports from other countries—could further complicate Australia’s trade situation.While higher U.S. tariffs could reduce competition, Eslake warned they might also increase inflation in the United States, affecting global trade.
“This will likely increase pressure on Australian businesses that export to the U.S. and could reduce demand for Australian minerals and energy commodities,” Eslake said.
“If other countries retaliate with similar tariffs, the consequences for Australia will be even worse.”
MP Joyce said Australia was highly dependent on trade.
“We are a trading nation who lives overwhelmingly on imported goods. We export raw materials and import manufactured goods,” Joyce said. “If you don’t export stuff, your currency is worth nothing.”
Meanwhile, the Business Council’s Black said if tariffs were universally applied to goods entering the U.S., it could affect demand for Australian-made products, which would, in turn, affect investment and jobs in Australia.
In a speech on Nov. 11, the treasurer said tariffs could reduce Australian exports and increase price pressures, but noted the country’s flexible exchange rate and independent central bank would help mitigate some of negative effects.
Yet tax advisor Kevin Beebe has said the move was aimed at reinvigorating the U.S. domestic economy, which had become heavily reliant on overseas imports.
“Imported electronics, vehicles, and certain consumer goods might get pricier, no sugar-coating it. But let’s think a bit longer-term: if tariffs boost domestic production, American companies have the opportunity (finally) to compete with foreign manufacturers.”