Busi­ness tax cuts are good but they leave us with two tiers

The Weekend Australian - - FRONT PAGE -

Just a day af­ter wear­ing crit­i­cism from former trea­surer Peter Costello about fail­ing to carve an eco­nomic nar­ra­tive and re­ly­ing on dis­tant tax cut prom­ises, Scott Mor­ri­son has had a sub­stan­tial vic­tory. The Prime Min­is­ter’s com­pany tax plan em­pha­sises a clear fo­cus of eco­nomic pol­icy on re­duc­ing tax­a­tion for com­pa­nies and in­di­vid­u­als to fuel eco­nomic growth. Now, even be­fore re­turn­ing the bud­get to bal­ance, Mr Mor­ri­son has brought the tax cuts within reach. The over­whelm­ing eco­nomic ar­gu­ment for this agenda has been ceded by La­bor and Bill Shorten, who took just 24 hours to roll over and sup­port the changes, de­spite pre­vi­ously re­ject­ing any fur­ther com­pany tax cuts. The cur­rent rate for com­pa­nies with an an­nual turnover be­low $50 mil­lion is 27.5 per cent and it will now be re­duced to 26 per cent in 2020-21, on the way to the set­tled new rate of 25 per cent in 2021-22. La­bor’s op­po­si­tion has blocked Coali­tion plans to grad­u­ally im­ple­ment this rate for all com­pa­nies over a decade but its back­flip now at least al­lows all busi­nesses be­low the $50m thresh­old to move to the 25 per cent rate. This is un­am­bigu­ously good news for small and medium-sized busi­nesses and their em­ploy­ees, in­creas­ing prospects for growth, in­vest­ment and wage rises. Buoyed by bet­ter-than-ex­pected rev­enues that will push the bud­get into sur­plus next year, Mr Mor­ri­son brought for­ward the tax cuts by five years. The power of his ar­gu­ment has forced La­bor to en­dorse it and the changes will be in­tro­duced in par­lia­ment next week.

The Coali­tion’s eco­nomic nar­ra­tive, which has taken longer to take shape than it should have, clearly is all about low­er­ing taxes. The com­pany changes are matched by a leg­is­lated flat­ten­ing of per­sonal in­come tax rates over seven years. By con­trast, La­bor prom­ises to in­crease the top per­sonal in­come tax rate by 2 per cent (although it might be hav­ing sec­ond thoughts) as well as raise taxes on real es­tate and eq­ui­ties in­vest­ments. Mr Mor­ri­son might have pre­ferred to have an elec­tion bat­tle with Mr Shorten over the com­pany tax rate. To that ex­tent, it is smart pol­i­tics by La­bor to change its po­si­tion and al­low the Coali­tion to have its way. But it is also the right thing for the econ­omy when we are look­ing to boost growth and com­pete for in­vest­ment against trad­ing part­ners that have more at­trac­tive cor­po­rate tax­a­tion regimes.

The Coali­tion won’t want to look like it is ar­gu­ing the case for ma­jor cor­po­ra­tions in the lead-up to the elec­tion, so po­lit­i­cal con­sid­er­a­tions might shield La­bor from the most salient ques­tion — if a 25 per cent tax rate is good for small and medium-sized busi­nesses and might en­cour­age in­vest­ment, growth and higher wages, why wouldn’t that same rate be de­sir­able for com­pa­nies that turn over more than $50m a year? The same ar­gu­ments ap­ply; only the pol­i­tick­ing dif­fers. For all the ben­e­fits of a more com­pet­i­tive com­pany tax rate the na­tion now will be stuck with a two-tier cor­po­rate tax sys­tem. This will act as a dis­in­cen­tive for medium-sized com­pa­nies to grow and for the largest cor­po­ra­tions to boost their in­vest­ments and work­forces in this na­tion. That is a nar­ra­tive we might not hear for a while.

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