According to multiple news reports the governor of the Reserve Bank of Australia last night told a business dinner that he supports the argument for company tax cuts in Australia to promote economic growth.
The governor reportedly suggesting that Australia needs to keep up with the proposed company tax rate cuts on the agenda under President Trump's U.S. administration, while other countries like the UK are also cutting company tax to attract investment in the wake of political upheaval.
In theory cutting company tax rates should encourage investment, wages and employment growth, while directly assist Australian companies in growing their net profits.
The issues around company taxation in Australia are complicated by the nation's dividend imputation system as some profits are distributed as dividends, while others are retained, but the overarching reality is that corporate tax cuts in Australia should help fire earnings growth and share price appreciation for investors.
If the western world including Australia were to corporate tax cuts the best companies to own would probably be those with defensive and globally diversified earnings. For example the likes of Ansell Limited (ASX: ANN), Amcor Limited (ASX: AMC) and Macquarie Group Ltd (ASX: MQG) all have substantial overseas earnings and the potential to benefit from tax rate savings.
Other successful companies that retain a large proportion of their profits for reinvestment rather than paying them out as dividends may also be major winners. Some of the best with low payout ratios include online property portal REA Group Limited (ASX: REA), tech infrastructure investor TPG Telecom Ltd (ASX: TPM), or beauty products retailer BWX Limited (ASX: BWX).
However, company tax cuts are a rising tide likely to lift all boats including the big banks like Commonwealth Bank of Australia (ASX: CBA), with the unrelenting rise of U.S. equity markets since Donald Trump's election in November a textbook example of how investors will bid up share prices in anticipation of changes to the tax system.
The Motley Fool's favourite dividend stock might also be in line to benefit from tax breaks…
