Tony Abbott has abandoned his enhanced PPL scheme, but word is that the tax earmarked to pay for it (a 1.5% levy on larger company profits) may be kept anyway. This would be bad policy and cynical politics.
The levy came from the book of budgetary smoke and mirrors. It enabled Abbott to appear to deliver on a promise to cut company tax from 30% to 28.5%, while giving up little revenue. In reality, the levy was a company income tax by another name, and would have left company tax at 30% for the larger companies that pay most of the tax. The result would have been a messy two-tier company income tax, with rates of 28.5% and 30%.
The proposal had a particularly nasty twist – denial of dividend franking credits for the levy. This would supercharge the revenue yield from the levy at the expense of shareholders, and quite possibly mark the beginning of the end of the dividend imputation system.
The logic behind the PPL levy was always spurious, but without the PPL it is even more so. I have never liked tax levies for specific purposes because they facilitate higher taxation by drawing bogus links between components of general revenue and expenditure. The link between the PPL levy and PPL was spurious, and the link between the levy and son-of-PPL will be even more bogus.
Making large company profits the target for additional taxation looks more like populist contempt for 'big business' than rational tax policy. There is no economic case for tax policy to distinguish between large and small companies. Policy should focus on the reality that among all taxes, company income tax on firms of all sizes is one of the most harmful to investment and economic growth.
Australia's 30% rate needs to be reduced to a more internationally competitive level, but it may have to wait. The right thing to do now is to set a single company tax rate at the lowest level the budget can afford in the current circumstances.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > PPL levy without the PPL?
PPL levy without the PPL?
The levy came from the book of budgetary smoke and mirrors. It enabled Abbott to appear to deliver on a promise to cut company tax from 30% to 28.5%, while giving up little revenue. In reality, the levy was a company income tax by another name, and would have left company tax at 30% for the larger companies that pay most of the tax. The result would have been a messy two-tier company income tax, with rates of 28.5% and 30%.
The proposal had a particularly nasty twist – denial of dividend franking credits for the levy. This would supercharge the revenue yield from the levy at the expense of shareholders, and quite possibly mark the beginning of the end of the dividend imputation system.
The logic behind the PPL levy was always spurious, but without the PPL it is even more so. I have never liked tax levies for specific purposes because they facilitate higher taxation by drawing bogus links between components of general revenue and expenditure. The link between the PPL levy and PPL was spurious, and the link between the levy and son-of-PPL will be even more bogus.
Making large company profits the target for additional taxation looks more like populist contempt for 'big business' than rational tax policy. There is no economic case for tax policy to distinguish between large and small companies. Policy should focus on the reality that among all taxes, company income tax on firms of all sizes is one of the most harmful to investment and economic growth.
Australia's 30% rate needs to be reduced to a more internationally competitive level, but it may have to wait. The right thing to do now is to set a single company tax rate at the lowest level the budget can afford in the current circumstances.
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