Australia Should Cut Company Tax Rate to 20 Percent for Firms Under $1 Billion: Commission

The Commission argues tax reforms could investment by $7.4 billion and boost GDP by $14.6 billion.

Treasurer Jim Chalmers at a press conference at Parliament House in Canberra, Australia on July 30, 2025. AAP Image/Mick Tsikas

Australia’s Productivity Commission has advised the federal government to overhaul its corporate tax system as part of a broader plan to boost productivity and long-term economic growth.

In a draft report released on Aug. 1,  the Commission recommends cutting the company tax rate to 20 percent—from the current 30 percent—for firms earning under $1 billion.

It also recommends introducing a new 5 percent “net cashflow tax” to encourage capital investment, and offset the loss of government revenue from the company tax cut.

The report says the reforms are designed to be revenue neutral, with the existing 30 percent company tax rate remaining in place for about 500 companies.

However, these companies could still be affected by the new cashflow tax, which allows businesses to deduct capital expenditure in full—effectively shifting the tax burden away from investment and toward consumption.

The Commission’s modelling suggests the reforms could increase private investment by $7.4 billion, lift GDP by $14.6 billion, and raise national productivity by 0.4 percent.

The final report is expected ahead of a national reform roundtable to be led by the Treasurer Jim Chalmers.

How the ‘Cashflow Tax’ Would Work?

At the core of the Commission’s plan is the net cashflow tax, which would apply at a rate of 5 percent and run in parallel with the existing company tax system.

Under this approach, firms could immediately made deductions on the amount they spend on capital, this is designed to cut back on any hesitancy for companies to make long-term investments.

“Instead of punishing firms for investing in their future, the system would reward them,” the draft report states.

Although the cashflow tax could increase short-term tax liabilities for large companies, the Commission argues it would not deter investment.

By allowing faster deductions, the tax system would become more efficient and less distortionary, potentially paving the way for broader corporate tax reform in the future.

“The reduction in Australia’s headline company tax rate would move Australia from having one of the highest to one of the lowest rates for small and medium-sized firms among developed economies,” wrote the deputy chair of the Commission, Alex Robson.

“And if the net cashflow tax is effective, it could be expanded over time and fund broader reductions in company income tax,” he wrote in The Conversation.

Red Tape Weighing Down on Economic Growth

Beyond taxation, the Commission warns that Australia’s productivity is being dragged down by excessive regulation and inefficient approval processes.

“Business leaders are spending more time navigating compliance than creating value,” the report notes.

A 2024 report by the Committee for Economic Development of Australia (CEDA) found that productivity is at its lowest point in 60 years.

To address this, the Commission is calling on governments to set clear regulatory targets, hold public servants accountable for pro-growth outcomes, and ensure Cabinet-level scrutiny of any new regulations that could hinder innovation or competition.

Robson weighed in saying regulators and policymakers do have a mandate to further the public interest.

“But they can face incentives to be overly risk-averse and to downplay the burden that regulations place on businesses. They may pursue narrow goals at the expense of broader economy-wide goals.

“In the Australian Capital Territory, for example, the average time a house builder must wait for a planning decision is nearly six months. In New South Wales, it takes an average of nine years to get approval to build a wind farm.”

Business Groups Back Urgent Reform Push

The Business Council of Australia (BCA) in its recommendation raised similar concerns and called for a comprehensive three-month review of the tax system, involving Treasury, the Productivity Commission, and private sector stakeholders.

The BCA warned that without bold and timely reform, Australia risks falling behind in global competitiveness.

“Some taxes discourage individuals and businesses from creating value and being productive,” the council said in a statement.

Among its key recommendations, the BCA is advocating for modernised R&D incentives, greater national support for AI and emerging technologies, and a 25 percent reduction in red tape by 2030.

The council argues that streamlining regulation could fast-track housing approvals, cut costs across the economy, and improve access to essential services.

COSBOA Pushes for Small Business Tax Cut

Meanwhile, the Council of Small Business Organisations Australia (COSBOA) has previously advanced its own reform agenda under the Fair Go for Small Business campaign.

Key proposals include reducing the small business company tax rate from 25 to 20 percent, making the instant asset write-off permanent, and introducing smarter, more flexible regulation tailored to small enterprises.

Modelling commissioned by COSBOA estimates these changes could boost the economy by $11.4 billion and create up to 3,370 permanent jobs. COSBOA chair Matthew Achterstraat said the data supports what small businesses have long argued.

“Tax relief boosts cashflow, reignites investment, and increases output, wages, jobs and growth,” he said.

The recommendations from the Productivity Commission, BCA, and COSBOA are being submitted to Treasury in preparation for the three-day national productivity roundtable in August, which will aim to build consensus on key economic reforms.

The first day of the roundtable will focus on tackling Australia’s productivity slowdown, while the second day will shift focus to sustainability and the clean energy transition.

The final day will open with remarks from Reserve Bank of Australia Governor Michelle Bullock, who will help frame the day’s discussions on long-term growth, economic resilience, and national prosperity.