In a bid to revive Australia’s sluggish productivity, the Productivity Commission has proposed slashing the company tax rate to 20% for nearly all Australian businesses – except the country’s biggest players who would face a new 5% cashflow tax under the plan.

Unveiled ahead of Treasurer Jim Chalmers’ Economic Reform Roundtable in August, the proposal represents the most significant corporate tax reform in decades.

The proposal would apply to firms with revenue under $1 billion – around 98% of all companies – while the roughly 500 largest companies would continue paying the existing 30% rate.

To balance the cost, the Commission recommends a new 5% “cashflow tax” across all businesses.

Treasurer Jim Chalmers

This levy targets taxable cash inflows but allows companies to immediately deduct capital investments – such as in new tech or equipment – rather than depreciate them over time.

Deputy chair Alex Robson said the changes are designed to drive investment, boost productivity and support long-term economic growth.

“In the past 10 years productivity grew by less than a quarter of its 60-year average,” Robson said. “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.

“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,” added Robson. “We need to spark growth through investment and competition – the best way to do that is to reform our company tax system.”

The proposal could deliver a $14.6 billion boost to GDP and lift investment by $7.4 billion, according to the Commission’s modelling.

The changes are also expected to level the playing field between smaller firms – often self-funded – and global giants adept at shifting profits offshore.

Critically, the plan would impact tech multinationals like Amazon and Apple, which currently pay relatively little tax in Australia.

Without strong local investment, these firms could see their tax bills rise under the cashflow model.

While the plan is “revenue-neutral,” it is already sparking debate.

Business groups warn it risks driving large-scale investment offshore, while unions are wary of cuts benefiting business at workers’ expense.

Still, Chalmers has welcomed the report as a valuable input to the upcoming roundtable.

With company tax reform off the political agenda for years, the proposal may reignite a high-stakes debate on how to fuel Australia’s next phase of economic growth.