Businesses could benefit from corporate tax cut

Australian businesses could soon be benefitting from a reduced tax rate after the federal treasurer Wayne Swan picked a team to investigate how a rate cut could be funded.

Mr Swan believes that the tax rate for companies should be slashed from 30 per cent to just 25 per cent.

He claims that failure to adapt to the tough economic climate will endanger Australia's economy, making it less capable of navigating the current financial storm.

A number of potential solutions are being considered to ensure a rate reduction can be pushed through – including the removal of depreciation allowances, research and development tax breaks and profit shifting.

Commenting on the proposed five per cent cut, ABC finance reporter David Taylor told the broadcaster's Eleanor Hall: "Treasurer Wayne Swan is hedging his bets a little bit."

Mr Taylor added: "The tax panel says that the tax cuts would lead to more foreign investment into the country via companies and that would lead to better companies, more improved productivity and … higher wages."

The company tax rate reduction would cost the treasury an estimated $26 billion, which would have to be made up from elsewhere. But, with sustained growth high on the political agenda economists will be doing all they can to find places to take that money from.

Economic turmoil is having a far reaching impact on enterprises, with demand for business loans slowing in the second quarter of 2012 for example. However, spending is starting to rise as Australian families start adapting to the poor financial situation.

Roy Morgan Research's Norman Morris claimed that a slight upswing in business confidence during July hints that Australia has passed the worst. However, he did reiterate the fragility of the economy at the moment and the fact that the uncertainty spreads well beyond Australia's borders thanks to things like the eurozone crisis.

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