The Productivity Commission has proposed a significant reduction of the company tax rate to 20% for businesses with revenue below $1 billion, marking the largest cut in nearly 40 years.

This initiative aims to stimulate investment and improve productivity, shifting Australia from having one of the highest company tax rates globally to one of the lowest.

Further consultations will be conducted by the Productivity Commission before releasing a final report by the end of the year.

PC deputy chair Alex Robson emphasized the urgency of these reforms to ensure future generations do not face a decline in living standards.

In addition to the tax rate cut, the Commission recommends reducing regulatory burdens that hinder growth, particularly in housing supply and green energy infrastructure.

To offset the tax cut, a new 5% net cashflow tax would be introduced, allowing businesses to deduct the full value of investments immediately, which is expected to boost capital expenditure by an estimated $8 billion.

Under the proposed tax structure, businesses with turnover below $1 billion would be taxed at 20%, while those above that threshold would maintain a 30% rate.

The report highlights that Australia’s high company tax rate is a barrier to foreign investment and drives local entrepreneurs to establish businesses in countries with lower tax rates.

Labor has not indicated support for the company tax cut and is focusing on tax avoidance measures targeting multinationals instead.

Treasurer Jim Chalmers has welcomed the report as vital input for the upcoming economic reform roundtable scheduled from August 18 to August 21, 2025.

The roundtable will also address reducing red tape, enhancing regulatory oversight, and focusing on AI and innovation, alongside budget sustainability and tax reform.

The proposal is expected to generate a $15 billion economic boost and increase investment by $7.4 billion, improving productivity by 0.4%.