For decades, prime ministers like John Howard, Malcolm Turnbull and Scott Morrison have told us lower corporate taxes would be our ticket to economic prosperity.

But those views are now under pressure as the world’s largest economy looks to reset the debate about how corporations pay their fair share of tax.

On Tuesday (Australian time) US Treasury secretary Janet Yellen called time on a 30-year “race to the bottom” on corporate tax rates globally.

She said the US would work with G20 nations – including Australia – to create a global floor on corporate contributions to public coffers.

“We can use a global minimum tax to make sure the global economy thrives based on a more level playing field in [taxing] multinational corporations,” Dr Yellen said.

The major policy shift is part of an OECD process that’s looking to establish a series of rules to help nations ensure profitable companies pay more tax.

It comes after US President Joe Biden detailed plans to increase the US corporate tax rate, which applies to all US companies, from 21 to 28 per cent to help fund his $2.5 trillion infrastructure plan.

US Treasury secretary Janet Yellen wants a global rethink on corporate taxation. Photo: AAP

Those developments put extra pressure on the Morrison government, which has shelved but not abandoned a plan to decrease corporate taxes to 25 per cent, to review its corporate tax regime.

Richard Denniss, chief economist at progressive think tank The Australia Institute, said the “radical shift” in US policy should be a wake-up call for Mr Morrison and Treasurer Josh Frydenberg.

“For decades we’ve been told that cutting company taxes and indeed cutting the top income tax rate for high-income earners will lead to enormous prosperity,” Dr Denniss told The New Daily.

“There was never any evidence to support that.”

In a statement to The New Daily, Mr Frydenberg said Australia would be an active participant in discussions with the US.

“Australia welcomes the United States’ commitment to continue to engage in the OECD-led discussions seeking to agree a globally consistent approach to the tax challenges posed by the digitalisation of the economy,” he said.

IMF backs tax-and-spend COVID recovery

There’s a growing understanding globally that companies and rich individuals aren’t paying their fair share of tax, amid skyrocketing wealth inequality that has only worsened during the pandemic.

Last week the International Monetary Fund (IMF) endorsed a tax-and-spend agenda, presenting the recovery from the COVID-19 recession as a good opportunity to tackle growing inequality by taxing the rich.

IMF economists said developed economies could introduce temporary levies on wealthier people, or taxes on excess company profits, to fund greater investment in social safety nets and improved public health care.

“Policies will need to aim at giving everyone a fair shot at lifetime opportunities by reducing gaps in access to quality public services,” IMF economists said in their April research paper.

The research is timely for Australia.

Last week another 155,000 Australians fell below the poverty line when the Morrison government cut the JobSeeker unemployment benefit.

And the recent Aged Care Royal Commission identified a multibillion-dollar gap in government healthcare funding.

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Taxing the rich: A $158 billion opportunity

There’s plenty money to be reaped, too.

Parliamentary Budget Office costings published last week reveal the federal government could be $31 billion richer over the next four years through taxes on billionaires and mining profits.

The costings, commissioned by the Australian Greens, show $11.2 billion could be raised from a 6 per cent tax on billionaire wealth between 2022 and 2024.

Separate costings evaluating a 40 per cent tax on mining super profits revealed a whopping $20 billion could be raised between 2022 and 2024, amid skyrocketing iron ore prices and production volumes.

The two policies combined would generate $158.8 billion over the next decade if implemented as suggested by the Greens, party finance spokesperson Nick McKim told The New Daily.

“Australia doesn’t have a revenue problem. What we’ve got is an unwillingness to make those who can most afford it pay their fair share,” Senator McKim said.

“We can fund the things we need to fund: A rapid transition to renewables, a home for everyone, and truly free public education.”

Independent economist Saul Eslake said other types of taxes could be easier to implement than a new mining tax, pointing to the current lower corporate tax rate for small and medium-sized businesses.

Under current laws, smaller companies will pay a 25 per cent corporate tax rate from July 2022, 5 percentage points lower than the rate for larger businesses.

“About 47 per cent of Australia’s tax gap is due to non-compliance by small business,” Mr Eslake said.

“Not only do we let them get away with this egregious tax avoidance, but we actually reward them by allowing them legally to pay 5 percentage points less than bigger businesses.”