Corporate Australia wants the government to follow its lead on cutting spending, and also hand out tax cuts to boost its competitiveness.
Mining companies in particular, facing a prolonged slump in commodities prices, want the government to deliver a long-sought reduction in company taxes during next week’s federal budget.
Resources companies, Australia’s largest export earners, have been forced to slash expenditure and take large asset writedowns over the last 18 months.
“While the minerals industry has taken steps to increase productivity and reduce costs, concerted government action is required to create a more growth-oriented and competitive policy environment,” the Minerals Council of Australia (MCA) has told Canberra.
The lobby group wants the budget to outline a cut in corporate tax rate from 30 per cent to 25 per cent.
The sector’s other major lobby group, the Association of Mining and Exploration Companies (AMEC), shares that view. It also wants removal of state taxes such as stamp duty and payroll tax, but has asked the federal government to retain tax incentives that support miners.
Analysts believe prospects for the tax cuts appear to be distant.
“Politically, its difficult for the government to justify cutting taxes for big corporations,” AMP Capital chief economist Shane Oliver said.
“A corporate tax cut could have been funded if we were looking at increasing or broadening in GST. But without that, it looks fairly difficult.”
Advisory firm Deloitte Access Economics estimates overall company tax collections for 2015/16 will likely fall $4.7 billion short of the official Treasury estimates, mainly because major miners – who account for a sixth of company tax revenue, have taken huge profit hits.
“Although company tax dominates total writedowns for profit taxes, special mention also needs to go to resource rent taxes, which continue to head the way of the dodo,” Deloitte said in a report ahead of the federal budget.
A recent rebound in prices of iron ore could provide some respite, but the gains are likely to be offset by a stronger currency.
Deloitte estimates that if current iron ore prices were to last, it would add around $15 billion to tax collections over a four-year period. That would also help trim the company tax shortfall to $2.3 billion in 2016-17.
But iron ore is largely expected to resume its downward trend as China’s economy slows.
Meanwhile, the hit to corporate profits in Australia has been larger than Treasury envisaged, and the higher Australian dollar is undoing the boost from higher commodity prices, it said.
That hasn’t deterred business lobby groups from pushing for a corporate tax rate closer to the OECD average of 25 per cent.
“Reducing the company tax rate is the most decisive way to encourage private sector investment that will lift productivity and competitiveness,” Australian Industry Group chief executive Innes Willox said.
Industry is also clear the government needs to curb spending to sustainable levels.
The Business Council of Australia has recommended the government avoid any new spending commitments that cannot be offset by savings. It also wants an overhaul of the healthcare system, and the aged pension and retirement income systems.
Business lobby group Australian Chamber of Commerce & Industry has asked for reforms to facilitate more private sector investment in infrastructure – a call Prime Minister Malcolm Turnbull has heeded – and a roadmap for workplace relations reform.