Economic Freedom

The dangers of a two-tiered tax system

Labor has thrown its support behind the Morrison government’s tax cuts for small businesses, and while such reforms should be embraced, creating a two-tiered tax system will have negative consequences for the Australian economy.

Under the proposed legislation, businesses with revenue of less than $50 million will be subject to a 25 percent business tax rate while those earning over the threshold will be taxed at 30 percent. Business tax cuts have become highly politicised in Australia, and the parliament’s unwillingness to budge on the issue puts us at odds with other developed countries who have implemented cuts over recent years.

Lowering the business tax rate would be a great policy, but creating a tiered system is not. There are two ways in which high business taxes will harm the economy. They reduce the savings rate by increasing prices, and they hamper economic growth, job creation, and wages by stifling Read the rest

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