By international standards, Australia’s business tax system combines a high company tax rate of 30 per cent with low taxation of domestic investors through dividend imputation. This prioritising of domestic investors over foreign investors discourages business investment because the evidence indicates that Australia is a small open economy where the marginal investor is foreign. Better aligning Australia’s business tax system with international practice would encourage business investment, reduce tax avoidance by multinational corporations and reduce the riskiness of national income.

This paper assesses the evidence on the size of these three effects and models the consumer benefits of better aligning the Australian business tax system with international practice.