Budget must axe tax cut

THE tax cut for big companies is dead – killed by banking’s historical failures in their so-called and so exquisitely misnamed “wealth” operations. Malcolm Turnbull and Scott Morrison should now make a virtue out of a necessity by formally ditching the cut in next month’s Budget.

Because the tax cut is already “paid for” in the Budget, by abandoning it, they would get to “spend” the $35 billion or so (over 10 years) again – just as Opposition Leader Bill Shorten is planning on doing in the next election campaign.

The best way to “spend it” is some mix of expanding the personal tax cuts that are going to be announced in the Budget, further cutting the deficit or increasingly the likely tiny surplus that will be unveiled for the so-called “out years”, and, importantly, also having some targeted business tax relief.

My colleague Robert Gottliebsen at The Australian has been arguing that the money that had been allocated to the general tax cut would be better used in targeted investment allowances. That would guarantee investment – you wouldn’t get the allowance unless you made the investment – whereas a general tax cut could be used to pay higher dividends to shareholders.

It is a powerful argument. It would also partly address the claim that a general tax cut would actually only go to foreign investors because of dividend franking. Only “partly” because these same foreign investors would also get access to targeted investment allowances.

Let me make my opinion absolutely clear: we need the general corporate tax cut precisely to appeal to foreign – and indeed local – investors in a global competition for investment capital, with corporate rates being slashed everywhere else. Indeed, we needed a cut from 30 to 25 per cent in one hit, like President Trump delivered (precisely because he did!), not spread slowly over 10 years as proposed.

We will suffer in the long term from failing to cut the tax rate. A country with a $1 trillion-plus foreign debt absolutely needs foreign investment. But after the banking revelations we are just not going to get it. What we might get, if the government persists in trying to deliver, is a Shorten Labor government.

We should also note how disgracefully dishonest Labor – and most particularly Shorten – has been; trying to argue at the same time that the proposed cut would give billions to the big banks; but at the same time, arguing that the tax cut would only go to foreigners (and not the banks, because of dividend imputation).

You can’t have it both ways. Unless you are Shorten talking out of both sides of his mouth to different audiences.

Let it also be very clear; anything that damages the banks doesn’t damage a comic book bunch of wicked cigar-smoking capitalists, but every Australian through their shareholdings (direct or indirect, whether they know it or not) in the banks.

Gratuitous harm to the banks would also hurt all Australians by damaging, potentially seriously, the economy. This is not a plea to give them a free pass to do bad things. It is a rejection of mindless hysteria.