Taxing time ahead
Townsville PRESIDENT Trump is about to throw out a huge challenge to Australia — and especially to opposition leader Bill Shorten.
The US Republicans are finally going to reveal their tax reform proposals. The headline change will purportedly be a cut in the corporate rate from 35 to 20 per cent.
Now it remains to be seen — especially after the Republicans failure to “repeal and replace” Obamacare — whether the tax “proposal” ever makes it into actual law. And if so, how much is ‘ negotiated away’ in getting it there.
But — according to a leaked report to the usually well- informed Axios website and coming to me via the Newsmax email — this is purportedly not just being backed, but was actually put together, by all the key Republicans in both houses of Congress ( House Speaker and Senate Majority Leader) and in the White House itself.
It is also proposed to cut the top personal rate from 39.6 to 35 per cent. But it is the corporate rate that matters to us and matters big time.
Why? Because right now the US rate at 35 per cent is the only company tax rate among the major developed economies — and even more critically, the dynamic countries to our north — which is higher than our 30 per cent ( apart from on the tiddlers).
If the US goes down even to, say, just 25 per cent, but certainly if it goes to 20 per cent, it will be as if we have hung a big sign outside Australia: foreign investors go home!
The only money they will want to put into Australia will be to continue to snap up rural land and suburban real estate and to build and buy CBD and associated area apartments. As for real business and jobs- creating investment: Fuggedaboutit.
Further, in the 21st century online world of Google, Facebook and Amazon, it will become even more difficult to “capture” the tax that should have been — or at least, we think should have been — paid to us for profits on business generated in Australia.
There are two broad questions posed by a world where everyone has a lower corporate rate than us.
Can our budget afford the cost of cutting to stay in the competitive investment race? Or, more intelligently, can the budget afford not to cut? And can we get anything through the Senate?
Answering the second question first, the answer starts and probably finishes with Shorten and the Labor Party more broadly.
Unfortunately, Labor — and it really is Shorten front and centre — has embarked on a policy of absolute total political opportunism; of refusing to support even the most basic, even the most necessary, changes to keep Australia functioning.
The biggest is, of course, the energy insanity that Labor has embraced; the government’s energy semi- sanity that it won’t support.
Shorten is fully prepared to keep electricity and gas prices at — totally unnecessarily — exorbitant levels, and to have the inevitable blackouts and gas turn- offs, to quite literally freeze pensioners and low incomeearners, so that the government suffers the political, well, heat.
In the past, even a politically opportunistic Labor opposition has tended to have some regard to at minimise to some extent the policy and fiscal devastation it would inherit as a consequence of failing to support sensible policy changes.
As for the first question, the final budget numbers for the 2016- 17 year are not the most encouraging start.
Treasurer Scott Morrison was waxing lyrical at how the deficit came in $ 4 billion- plus lower for the 2017- 18 year than was predicted in May.
But it was still $ 33 billion in the red. Further, $ 4 billion of the lower number came about because the tax take was higher, just $ 1 billion because spending was lower than forecast.
In terms of what the budget can afford, the critical numbers are what happens in the current year and to a lesser extent what is predicted over the next few years. We will have to wait until the budget update in December for those.
But whatever the budget “can afford”, if the US does go down to 20 per cent — or even just 25 per cent — the economy can’t afford not to follow. Will the prime minister, at least rhetorically, beat the drum?
Back in November, the election of Donald Trump gave Malcolm Turnbull the chance to start to walk back — at least, politically — from the energy insanity we have imposed on ourselves.
Not only didn’t he seize it; he doubled down in the opposite direction by theatrically committing to the ludicrous Paris climate change commitments — and apart from allowing Shorten and Labor to escape the heat of their own, even more devastating, energy insanity, we will live with the disastrous consequences.