The Australian Government has asked the Productivity Commission (PC) to find ways to build a stronger economy. This inquiry aims to create a more dynamic and resilient economic system. The PC’s job is to pinpoint the most important reforms and to develop practical recommendations for action.

An interim report has now been released. It contains draft recommendations focused on two crucial areas:

• Corporate tax reform to encourage business investment.
  
• Finding efficiencies within the regulatory system, which means cutting red tape.
  

The interim report provides interesting observations. Its key draft proposals are summarised here.

Corporate Tax Reform

The PC notes a significant decline in business investment over the last ten years. It finds that the corporate tax system plays a major role in solving this problem. The core suggestion is that the existing system requires modernisation. The goal is to create a more efficient tax mix.

A proposed first stage involves two connected parts. The first part is a lower tax rate. Businesses earning under $1 billion may see their tax rate reduced to 20%. Larger businesses would continue to pay the 30% rate. The second part is a new cashflow tax. This would apply a 5% levy on company profits. Its key feature is allowing companies to fully deduct capital expenditure in the year it occurs. This measure is designed to encourage immediate investment and support a more dynamic economy.

Cutting Down on Red Tape

The report confirms that businesses spend increasing amounts of time on regulatory compliance. This finding will not surprise most business owners. They regularly navigate complex regulations from multiple government layers. The report gives real world examples. In New South Wales, windfarm approvals can take up to nine years. Opening a café in Brisbane might involve up to 31 separate regulatory steps.

To address this, the PC proposes several fixes. The Australian Government should adopt a whole-of-government statement. This would commit to new principles and processes designed to support economic dynamism. 

Furthermore, all regulations must be scrutinised. Officials need to fully consider its impact on growth and dynamism. 

These are only draft recommendations from an interim report. Therefore, we are a long way from any implementation. The report does, however, offer valuable insight into the Government’s potential reform areas for boosting national productivity.