Creating a more dynamic and resilient economy
Interim report
Released 31 / 07 / 2025
The PC has been asked by the Australian Government to conduct an inquiry into Creating a more dynamic and resilient economy. As part of this work, we have been tasked with identifying priority reforms and developing actionable recommendations.
In this interim report, the PC presents draft recommendations focused on two key policy reform areas:
- Corporate tax reform to spur business investment
- Regulating to promote business dynamism.
Executive summary (DOCX 3.6 MB)A transcript will be available shortly.
Reforming company tax and regulation to boost productivity
A Productivity Commission proposal to change the way businesses are taxed would boost Australia’s GDP by $14 billion with no net cost to the Budget over the medium term.
Draft recommendations in the new interim report, Creating a more dynamic and resilient economy, would see the company tax rate fall by up to 10 percentage points for businesses with revenue under $1 billion (the vast majority), lifting business investment and productivity growth.
Lower company tax rates are likely to attract more overseas firms to invest in Australia, help people start and grow businesses, and strengthen the ability of smaller Australian firms, which contribute the bulk of capital investment, to compete with larger ones.
These cuts would be coupled with a new 5% net cashflow tax that supports companies’ capital expenditure by allowing them to immediately deduct the full value of their investments. Together, the changes could increase investment in the economy by $8 billion while being revenue-neutral over the medium term.
‘If we don’t get our economy moving again, today’s children could be the first generation to not be better off than their parents. We need to spark growth through investment and competition – the best way to do that is to fix our company tax system,’ said PC Deputy Chair Dr Alex Robson.
‘Our proposed reforms will begin to shift the company tax system towards one that better supports investment and productivity growth.’
Capital expenditure by all non-mining firms is down 3.2 percentage points as a share of GDP since the end of the global financial crisis in 2009.
‘In the past ten years productivity grew by less than a quarter of its 60-year average. To turn this around, we need business to expand and invest in the tools and technology that help us get the most out of our work,’ said Dr Robson.
The 1.2 million Australian companies that earn below $50 million (on 2022-23 figures) would see their company tax rate fall from 25% to 20%, while the rate for around 7000 companies earning between $50 million and $1 billion would drop from 30% to 20%.
The reduction in Australia’s headline company tax rate would move Australia from having one of the highest to one of the lowest statutory rates for small and medium-sized firms in the OECD.
Company tax would remain at 30% for firms earning over $1 billion. If the net cashflow tax is effective, it could be expanded over time and fund broader reductions in company income tax.
Regulating to promote business dynamism
The interim report also finds that the ever-growing thicket of rules and regulations faced by business is significantly limiting productivity growth.
In consultations for its inquiry, the PC heard that businesses have faced a growing regulatory burden over the past two decades. In the ACT, for example, the average time a house builder must wait for a planning decision is nearly six months. In New South Wales, it takes an average of nine years to get approval to build a windfarm.
‘You need so many licences and approvals from different levels of government to start a café in Brisbane that the City Council introduced a check list with up to 31 steps to guide people through the process,’ said Commissioner Sterland.
‘Regulation is important, but over-regulation is a handbrake on growth. The Government needs to cut through the thickets of regulation that are slowing us down and ensure any new regulations are made with growth in mind.’
The report urges the Australian Government to make a clear public commitment to reducing regulatory burdens, and ensure new regulatory proposals face greater Cabinet and Parliamentary scrutiny.
‘Government and regulators need to bring a growth mindset to new proposals for regulation by asking how they would affect growth and dynamism in the economy’ said Commissioner Sterland.
The Government should set clear expectations for regulators to look for ways to promote economic growth, while continuing to ensure that Australians are protected against avoidable harms. The PC also recommends the appointment of an independent statutory commissioner to give more power to the Office of Impact Analysis, which scrutinises all proposals for regulation.
The PC is now accepting submissions on these reforms to inform the final report that will be released later this year. This interim report is the first of the five pillars of productivity inquiries that the PC will publish over the next three weeks setting out ambitious but achievable reforms to boost Australia’s productivity.
Media requests
The PC commissioned two Computable General Equilibrium (CGE) modellers to estimate the economy-wide impacts of various company tax options.
CGE modelling report 1
Cite: Murphy, Chris (2025), Corporate Tax Reform Modelling Scenarios: First Stage Report, 24 June 2025
Corporate Tax Reform Modelling Scenarios: First Stage Report (PDF - 637.9 KB)
CGE modelling report 2
Cite: Nassios, Jason, Janine Dixon, Xianglong Locky Liu and Sam Marginson, (2025), Broad vs Targeted Company Tax Reforms A CGE Analysis of Ten Percentage Point Reductions in Australia, Centre of Policy Studies Working Paper No. G-356, Victoria University, July 2025
Broad vs Targeted Company Tax Reforms A CGE Analysis of Ten Percentage Point Reductions in Australia (PDF - 1.3 MB)
The following excel file contains tables of data used to make the figures within this report.
Chart data (Excel - 48.2 KB)
Preliminaries: Cover, Copyright and publication detail, Opportunity for comment, Terms of reference, Disclosure of interests, Acknowledgements, BLADE disclaimer notice, and Contents
Executive summary
Draft recommendations
About this inquiry
- Corporate tax reform to spur business investment
- Declining business investment makes us less productive
- Reform to help firms invest, innovate and compete
- Tax reform is never easy, but it can be simple
- Regulating to promote business dynamism
- Our regulatory systems hinder business dynamism
- A regulatory policy that supports business dynamism
- A roadmap to reform
- A. Public consultation
- B. Supporting analysis for: Corporate tax reform to spur business investment
- B.1 Tax principles
- B.2 A note on economic rent
- B.3 Further implications of the net cashflow tax
- B.4 Reform options considered
- B.5 Overview and comparative analysis of modelling commissioned to support corporate tax design
- C. Supporting analysis for: Regulating to promote business dynamism
- C.1 Survey of regulators and policymakers
- C.2 Review of ‘adequate’ impact analyses
- C.3 Regulatory stewardship guide
Abbreviations
References
Printed copies of this report can be purchased from Canprint Communications.
The due date for submissions was on 15 September 2025.
