Australia must follow US tax cutting lead: economist

cutting scissors

US President Donald Trump’s economic policies could have a significant impact on the Australian economy, especially if his much-touted corporate tax cut is implemented, according to an Australian economist.

BetaShares chief economist David Bassanese says if the US cuts the corporate tax rate, as appears likely, Australia must follow suit.

“There’s a global competition going on with cutting corporate tax rates and the UK is promising to do the same thing. Australia can’t be left behind in that regard and that’ll add to the pressure that we follow suit,” Mr Bassanese told nestegg.com.au.

“I think it will bolster the argument of the Australian government that we need a corporate tax cut here, and I think we do.”

Mr Trump has proposed cutting the corporate tax rate from the current 35 per cent to around 15 to 20 per cent, bringing the US closer to the UK’s 20 per cent rate.

There’s little doubt that the cut will eventuate as it has bipartisan support, State Street Global Advisors (SSGA) says.

“Corporate taxes are low-hanging fruit because everyone wants it cut, even some Democrats. It’s the third-highest corporate tax rate in the world, not that corporations pay it,” SSGA chief economist Christopher Probyn said.

“When it comes to changing taxes, they don’t need 60 votes in the Senate. They can do it with a straight majority and they’ve got one,” Mr Probyn said.

“The small and medium enterprises, that can’t afford the lobbyists and the tax loopholes those corporations can, will benefit from it.”

While a rate cut in the US would make Australia’s 30 per cent corporate tax rate seem an unattractive investment option, the economic impact could be softened by a weakened Australian dollar.

“My base case is that this year the US dollar will have to strengthen because the US is going to remain the strongest economy in the developed world,” Mr Bassanese said.

“If [Mr Trump] remains a positive influence in markets, he’ll probably usher in a stronger US dollar, a weaker euro and by consequence a weaker Australian dollar.”

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