THE business tax working group's failure to settle on a way of cutting the company tax rate to help the economy shows Labor's tax reform is in chaos, shadow treasurer Joe Hockey says.
The group says a cut of two to three percentage points to the company tax rate could be funded through changes to the tax treatment of interest, capital allowances and research and development spending.
However, the group, set up by the Gillard government after the Tax Forum in October 2011, said that despite consultation with 20 groups and more than 80 submissions, it could not recommend a specific revenue-neutral way to lower the company tax rate.
"It was clear to the working group that there was no agreement in the business community to broaden the business tax base to fund a cut in the company tax rate at this time," the report found.
Mr Hockey says it shows Labor's tax reform is in chaos.
"The business tax working group was set an impossible task to find a way of hiking taxes to fund a cut," he said in a statement.
"How can the business community have any confidence in a government that blindsided them on Monday when Wayne Swan lacked the courtesy to even consult with the business tax working group over the changes to company tax schedules announced in the mid-year economic and fiscal outlook?"
In its final draft report on Wednesday, the group said a lower corporate tax would increase Australia's ability to attract foreign investment and have other economic benefits in terms of higher profits and real wages and lower prices.
The cut should be made "as economic and fiscal circumstances permit".
"This would need to be considered against other budget priorities and should take into account the overall mix of business taxation," the report said.
A one percentage point cut in the company tax rate could raise GDP and real wages by about 0.2 per cent, the group said.
Deepti Paton, tax counsel at The Tax Institute, said she was disappointed by the end of a significant opportunity for company tax reform.
"We call on the government to renew its commitment to securing a company tax rate cut, via a revision of the terms of reference of the working group."
The institute wants consideration of broader reform options such as changes to the base and rate of the GST.
It also wants recommendations on joint federal and state initiatives to drive state taxes reform.
A streamlining of the personal taxation and transfer systems is essential to ensure that the tax reform process is considered holistically and that the drive is maintained, it says.
Ai Group chief Innes Willox was not surprised the working group found little support in the business community to finance a company tax cut from within the business tax system.
"Finding a sensible way to finance it will require looking beyond the business tax system," Mr Willox said.
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