Based on recent analysis from the Productivity Commission and ongoing policy discussions ahead of the Economic Reform Roundtable
Australia’s economic landscape is facing a critical juncture, with mounting evidence that large corporations’ market dominance is hampering both productivity growth and fair competition for small businesses. The Productivity Commission’s latest interim report, “Creating a more dynamic and resilient economy,” reveals troubling insights about how our current tax system may be inadvertently supporting corporate oligopolies while leaving smaller enterprises struggling to compete.
The Oligopoly Problem
The Productivity Commission’s latest modelling reveals a striking reality: 54% of Australia’s company income tax base now consists of “economic rents” – essentially excess profits that large corporations can extract due to their market power, up from 41% just a few years ago. These rents represent profits above what would be earned in a truly competitive market, and they’re having real consequences for Australian consumers and businesses.
As economics commentator Bernard Keane notes, “a big rise in large corporations raking in profits by abusing their market power is impacting inflation”. For small and medium enterprises, this concentration of market power creates an uneven playing field where large corporations can leverage their dominant positions to maintain higher prices and margins, while smaller businesses face increased costs and reduced opportunities for growth.
The Tax Reform Proposal
The Productivity Commission’s comprehensive proposal could boost Australia’s economy by $14 billion without worsening budget sustainability. The key elements include:
Dramatic Tax Cuts for Most Businesses: The 1.2 million Australian companies earning below $50 million would see their company tax rate fall from 25% to 20%, while around 7,000 companies earning between $50 million and $1 billion would see rates drop from 30% to 20%. This 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.
Large Corporations Maintain Current Rates: Companies earning over $1 billion would continue to be taxed at 30%, explicitly because a much larger proportion of their profits consist of economic rents.
Revolutionary Investment Incentives: A new 5% net cashflow tax would allow companies to immediately deduct the full value of their investments, incentivising $8 billion in additional business investment.
Addressing Market Power: The proposal recognises that traditional broad-based corporate tax cuts often flow to shareholders of large companies rather than driving productive investment, especially when those companies have significant market power.
What This Means for Small Business
For businesses like those Commercial Brokers Australia works with, these proposed changes could represent significant opportunities:
Improved Cash Flow: Immediate depreciation of capital investments would improve cash flow for businesses investing in growth, whether that’s new equipment, technology systems, or expansion into new markets.
Level Playing Field: By addressing the tax advantages that help maintain large corporations’ dominant positions, smaller businesses could face more competitive market conditions.
Enhanced Investment Returns: The proposed changes aim to make productive investment more attractive relative to simply extracting rents from market position.
The Financing Implications
These tax reforms would have significant implications for business financing strategies:
Asset Finance: The ability to immediately write off capital investments makes asset finance even more attractive, as the tax benefits flow through immediately rather than over several years.
Business Growth: Improved cash flows from tax reforms could reduce financing needs for expansion, or make businesses more attractive to lenders by improving their financial position.
Investment Property: For businesses considering property investments, the tax treatment of different asset classes becomes even more critical to optimise returns.
The Road Ahead
The upcoming Economic Reform Roundtable (August 19-21) aims to build consensus on ways to improve productivity, enhance economic resilience and strengthen budget sustainability. However, implementation faces significant opposition. The Business Council of Australia and a coalition of 27 industry organisations have already released a joint statement criticising the cashflow tax as “an experimental change that hasn’t been tried anywhere else in the world” and warning it “risks putting more pressure on all Australians still struggling under cost-of-living pressures.”
Despite this pushback, the Productivity Commission’s analysis suggests that the status quo – where declining business investment has caused productivity growth to fall to less than a quarter of its 60-year average – is unsustainable.
Taking Action
For Australian businesses, particularly those in the small to medium enterprise sector, staying informed about these developments is crucial. The potential changes could significantly impact:
- Investment timing decisions
- Financing structure optimisation
- Cash flow planning
- Growth strategy development
Working with experienced finance professionals who understand both the current landscape and potential changes becomes increasingly valuable in navigating this evolving environment.
References:
- ABC Article 3/8/2025, “Hike taxes on the oligopolies extracting ‘rent’ from Australia’s economy“.
- Productivity Commission (2025), “Creating a more dynamic and resilient economy” – Interim Report
- Keane, B. (2025), “Never mind company tax — reform proposal reveals Australia’s real inflation cause”, Crikey
- Business Council of Australia (2025), “Joint Group of Industry Organisations statement in response to Productivity Commission report”
Please note: This article synthesises information from multiple sources discussing the Productivity Commission’s proposals and related policy debates. For the most current information, readers should consult the original ABC News article and official Productivity Commission reports.
Commercial Brokers Australia specialises in helping businesses navigate complex financing decisions and optimise their financial structures. Founded in 2002, we provide independent advice across business finance, asset finance, and investment property finance to clients throughout Australia. Contact us to discuss how potential tax reforms might impact your business financing strategy.
