In response to broad hints from Prime Minister Julia Gillard that the Labor-led government plans to revive a previous initiative to lower corporate tax rate to 29 per cent from 30 per cent, business groups issued a challenge to her.

Business leaders agreed cutting the tax rate would be good, but they insisted it should be funded by spending cuts, not new taxes to be collected from business. The leaders issued the challenge at the end of the two-day business summit on Wednesday in Brisbane.

Jennifer Westacott, chief executive of Business Council, said the cut in corporate tax rate must be a part of a larger tax reform package which would result in lower overall business taxes.

Innes Willox, chief executive of the Australian Industry Group, opposed a government proposal to fund the corporate tax rate cut by reducing tax incentives for research and development.

Coalition leader Tony Abbott, in an apparent bid to boost his sagging popularity rating, spoke against Ms Gillard's proposal.

"What Julia Gillard has announced is that there will never be a company tax cut unless it is funded by a tax increase. That is not a tax cut, that's a tax con - and the Australian people and business community will see right through it," The Sydney Morning Herald quoted Mr Abbott.

Ms Gillard gave the expert body established in 2011, the Business Tax Working Group, the task of identifying funds for a company tax cut. In May 2011, the Gillard government took back its promise to cut 1 per cent from the corporate tax rate because of the objection by the Greens and the Opposition of the cut being funded by the mining tax.

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