Extract from The Guardian
The Coalition says $48bn worth of company tax cuts would keep
Australia competitive – but a debate is needed about what sort of
society we want in the end
“Because Donald Trump thinks it’s a good idea” has got to be among the most unconvincing reasons for Australia to do something.
But that’s pretty much where Scott Morrison is going with his second attempt to get the Coalition’s “jobs and growth” election plan and its $48bn worth of company tax cuts through the parliament.
Facing the prospect of only winning Senate support for the small business end of the tax breaks, the government decided to shelve the lot and try again this year.
Business leaders have been keen to hold it to that plan, loudly insisting the tax cuts need to proceed in newspaper editorials through the summer and even while enjoying an annual summer yacht race.
And on a trip to London the treasurer has duly started his new and improved sales pitch with a dire warning. If parliament doesn’t pass the tax cuts we’ll be “stranded” because the UK is reducing its tax rate to 17% by 2020 and Trump wants to reduce the US rate to 15%.
Leaving Australia’s rate at 30% would “run the great risk of stranding our businesses and the jobs that rely on them”, he said.
Surely we need a bit more evidence than a simplistic comparison of raw tax rates before we join the rush to reduce our national tax revenue even further.
Arguments for a competitive tax rate have to be assessed in context and we went through most of them during that long and repetitive election campaign, memories of which are, mercifully, fading.
Treasury modelling did show the planned tax cuts would boost economic growth, a little bit. But there was no way to compare that increase (0.6% of gross national income in a decade’s time) with other things that might have been done with the money.
And there were no answers to questions about how we would manage the revenue shortfall, at a time when Australia is struggling to pay for things like hospitals and schools and when inequality is already rising, nor any analysis of the social and economic consequences of even more cuts to services.
There was the complicating factor of Australia’s unique dividend imputation system, which meant the real tax rate for local investors is lower than the headline rate.
And there were also the inconvenient revelations about how many big companies use complicated profit-shifting schemes to pay little or no net tax, which somewhat undermined the argument that they were all about to rush offshore because they pay too much tax here.
To its credit the government responded to those revelations with a diverted profits tax – a so-called “Google tax” – to try to fix that problem: a 40% penalty for companies caught undercutting Australia’s tax rate of 30% by transferring profits to countries with a lower tax rate without a good enough reason. It’s supposed to start in July but it hasn’t yet been legislated.
And the same big businesses, and the global law firms that advise them on how to manage their taxes, have also started the new year arguing that the “Google tax” crackdown needs to be weakened because, you guessed it – we’ll be uncompetitive with the new tax regime Trump is planning.
Despite all their lobbying, a country’s tax rate isn’t the only factor that determines where companies invest – they also take into account things like political and economic stability.
And given the ructions of Brexit in Britain or the political convulsions in the US or the other tax ideas the new president is spraying around, like punitive import tariffs, we would have to rank pretty well on those measures.
Perhaps that relative political stability also has something to do with our comparatively strong social safety net, which the company tax take helps to pay for.
We sure wouldn’t need to raise as much company tax if we followed Trump’s Obamacare lead and abolished Medicare, or ditched the national disability insurance scheme or moved to a US-style system for helping the unemployed.
By all means debate whether Australia’s tax rate is competitive but if we’re going to benchmark ourselves against the company tax rate Trump is planning, we should also talk about what emulating him would mean for our society.
But that’s pretty much where Scott Morrison is going with his second attempt to get the Coalition’s “jobs and growth” election plan and its $48bn worth of company tax cuts through the parliament.
Facing the prospect of only winning Senate support for the small business end of the tax breaks, the government decided to shelve the lot and try again this year.
Business leaders have been keen to hold it to that plan, loudly insisting the tax cuts need to proceed in newspaper editorials through the summer and even while enjoying an annual summer yacht race.
And on a trip to London the treasurer has duly started his new and improved sales pitch with a dire warning. If parliament doesn’t pass the tax cuts we’ll be “stranded” because the UK is reducing its tax rate to 17% by 2020 and Trump wants to reduce the US rate to 15%.
Leaving Australia’s rate at 30% would “run the great risk of stranding our businesses and the jobs that rely on them”, he said.
Surely we need a bit more evidence than a simplistic comparison of raw tax rates before we join the rush to reduce our national tax revenue even further.
Arguments for a competitive tax rate have to be assessed in context and we went through most of them during that long and repetitive election campaign, memories of which are, mercifully, fading.
Treasury modelling did show the planned tax cuts would boost economic growth, a little bit. But there was no way to compare that increase (0.6% of gross national income in a decade’s time) with other things that might have been done with the money.
And there were no answers to questions about how we would manage the revenue shortfall, at a time when Australia is struggling to pay for things like hospitals and schools and when inequality is already rising, nor any analysis of the social and economic consequences of even more cuts to services.
There was the complicating factor of Australia’s unique dividend imputation system, which meant the real tax rate for local investors is lower than the headline rate.
And there were also the inconvenient revelations about how many big companies use complicated profit-shifting schemes to pay little or no net tax, which somewhat undermined the argument that they were all about to rush offshore because they pay too much tax here.
To its credit the government responded to those revelations with a diverted profits tax – a so-called “Google tax” – to try to fix that problem: a 40% penalty for companies caught undercutting Australia’s tax rate of 30% by transferring profits to countries with a lower tax rate without a good enough reason. It’s supposed to start in July but it hasn’t yet been legislated.
And the same big businesses, and the global law firms that advise them on how to manage their taxes, have also started the new year arguing that the “Google tax” crackdown needs to be weakened because, you guessed it – we’ll be uncompetitive with the new tax regime Trump is planning.
Despite all their lobbying, a country’s tax rate isn’t the only factor that determines where companies invest – they also take into account things like political and economic stability.
And given the ructions of Brexit in Britain or the political convulsions in the US or the other tax ideas the new president is spraying around, like punitive import tariffs, we would have to rank pretty well on those measures.
Perhaps that relative political stability also has something to do with our comparatively strong social safety net, which the company tax take helps to pay for.
We sure wouldn’t need to raise as much company tax if we followed Trump’s Obamacare lead and abolished Medicare, or ditched the national disability insurance scheme or moved to a US-style system for helping the unemployed.
By all means debate whether Australia’s tax rate is competitive but if we’re going to benchmark ourselves against the company tax rate Trump is planning, we should also talk about what emulating him would mean for our society.
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