Australian Bond Fund managers are nervous about the risks of rising yields from corporate bonds.
The Federal Government last week cut corporate tax from 6.5 per cent to 4 per cent.
The latest report from the Commonwealth Bank’s Capital Economics business research group, published on Thursday, said that “the risk that bond yields will rise as a result of the corporate tax cuts is lessened” by the tax cut’s benefit to corporate income tax revenue.
“However, investors are also concerned about the impact of corporate tax reductions on corporate profits, the amount of corporate debt and corporate profits,” it said.
“The Federal government is also likely to continue to lower corporate tax rates, which will increase the amount that households pay in tax.”
Mr Cameron has said the Government is looking at reducing the corporate rate to 7 per cent, which would cut the rate for those earning less than $50,000 from 10 per cent this year to 5 per cent in 2020.
But the Treasury said the cuts would still leave some taxpayers “at risk of paying higher rates”.
“We are concerned that many taxpayers will have to pay higher tax rates on corporate income and will be at higher risk of tax evasion and other forms of tax avoidance,” Treasury spokesman Peter Wright said.
The Government has not set a date for the start of tax cuts.
“We know the cost of doing business is higher, we are doing everything we can to ensure that people can continue to do business and make money,” he said.AAP/ABC