Government Business Tax Cuts

Talking about the tax cuts in business, the Australian government is all for cutting corporate taxes so that small businesses can profit more by investing more and hiring more labour. The corporate tax can be brought down by reducing the income tax rate for all businesses by 5 percent from 30 to 25 percent by the years 2026-27. There is still an uncertainty in the government about these tax cuts which is dependent on whether the government can afford them at present given the current budget. But then, the question also arises whether small businesses will be able to survive without any tax cuts.

Can the government afford a tax cut?

At present, the problem is that there is a structural deficit in the budget and therefore it will be difficult to create a surplus if the government cuts taxes. A structural deficit indicates that the government is not getting enough money or revenue for all of the various services it provides to the people. Therefore, this deficit exists and the government has been trying to get the budget to a surplus, but any big tax hit or cut could set back the surplus that is meant to be ascertained by 2021. However, the government has started giving small businesses tax cuts that range from 2.5 to 27.5 percent. This is not a big tax cut percentage but it applies to a whole range of sectors and going by statistics, it has increased investment in the economy.

• What about the big business tax cuts?

The impact of tax cuts on big businesses may slow down the government in the beginning but over time, these tax cuts will lead to a much greater addition in the economy in terms of employment and investment. This could be to the effect of around $20 billion per year, once the benefits assemble over time. But, for this to happen, the corporate tax rate has to remain as high as possible. Even if Australia’s corporate tax rate stays put at 25 percent, it will still benefit from tax cuts over time.

• But do the big businesses pay this tax rate?

Most of the big businesses do not end up paying these high tax rates as they claim deductions on their taxable income in the form of depreciation, research, interest costs and development. Most of the time these businesses are claiming losses from previous years and this expenditure is justified. But some businesses take advantage of the system to make their taxable income less and avoid paying all the necessary taxes. This will be detrimental to the economy especially if there are tax cuts to be made. The government is, at present, striving to keep up investments in their country so that there will be no further revenue deficits and tax cuts can be made with ease.