Private Credit Weekly Insights, 1 August 2025

Driving Productivity: A Cash Flow-Based Company Tax Proposal

As Australia navigates through a period of moderate economic growth and elevated interest rates, the focus on structural reforms to unlock long-term productivity gains has never been more critical. This week, the Productivity Commission sharpened that focus with a provocative recommendation: replacing the current company tax system with a 5% tax on cash flow.

The Commission's proposal targets what has long been regarded as a drag on Australia’s competitiveness—our 30% corporate tax rate. While recent international moves, including the OECD-led global minimum tax, have narrowed the relative disadvantage, Australia still sits well above many global peers when it comes to taxing corporate income. The suggested 5% cash flow tax would represent a bold shift, taxing revenues minus current expenses and capital expenditures, rather than taxable income.

Such a reform, if implemented, would fundamentally alter the investment landscape. It would remove the disincentive to invest in capital, as all capital expenditures (capex) would be immediately deductible, simplifying compliance while aligning tax outcomes with business reinvestment cycles. For SMEs and business lenders alike, the implications are substantial. A cash flow-based tax would increase after-tax cash availability, particularly benefiting fast-growing and capital-intensive firms, many of whom access non-bank funding when traditional credit becomes restrictive.

The Commission acknowledged that this would be a radical move, and one that may take time to build political consensus around. However, with Australia’s productivity growth languishing below historical norms and the need to re-energise business investment post-COVID and post-rate-hike cycle, the conversation is timely. Policymakers may not act immediately, but the direction of travel—toward simpler, investment-friendly tax settings—is one that both capital providers and borrowers should welcome.

Business Lending: Competitive Dynamics Among the Majors

The second half of 2025 is shaping up to be a pivotal period for business credit growth, and major banks are ramping up their competition. National Australia Bank (NAB), the traditional leader in business banking, is facing pressure from the Commonwealth Bank of Australia (CBA), which has been aggressively chasing market share.

The recent leadership change at NAB’s business bank sees Kelly Bayer Rosmarin take the reins amid signs of slowing growth. NAB’s commercial loan book, at $134 billion, grew just 3.2% in the June quarter—its weakest expansion in 18 months. In contrast, CBA recorded 5.4% growth in its business lending portfolio, accelerating its recent momentum and closing the market share gap.

Importantly, the shift is not just about volumes. CBA has been targeting higher-quality SME borrowers with broader relationship offerings, including digital lending solutions and integrated treasury services. Meanwhile, NAB is reorienting its strategy, focusing on relationship banking and customer segmentation, particularly among mid-sized corporates and agri-businesses. Both banks see the business lending market as a key battleground for margin resilience in a lower housing credit growth environment.

From the perspective of private credit providers, the competitive repositioning among the majors presents both challenges and opportunities. On the one hand, heightened bank activity may put pressure on margins in some borrower segments. On the other hand, the increasingly segmented and tech-driven nature of bank offerings leaves gaps, particularly for non-bank lenders who can offer speed, flexibility, and tailored warehouse funding solutions to specialist originators servicing niche SME cohorts.

We continue to see strong demand from business lenders seeking scalable capital solutions outside the big four. This is especially true in areas where the banks remain risk-averse, including asset-backed working capital finance, trade credit, and unsecured lending to thin-file borrowers. As bank appetite becomes more barbell-shaped—chasing either large, low-risk corporates or fully digitised microbusinesses—the space for non-bank intermediaries to deliver value through credit expertise and agile structuring only expands.

Looking Ahead

With the RBA poised to review its monetary policy settings, markets are watching for a potential shift in tone. A modest loosening cycle beginning in late Q3 remains a distinct possibility. We anticipate an interest rate cut on August 12.

At Aura Private Credit, we remain focused on partnering with Australian business lenders who can navigate this evolving environment, supporting real economy growth through disciplined credit underwriting and funding solutions aligned to structural economic tailwinds.