Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
We want businesses in Australia to have the best possible opportunity to grow, so they create more jobs and, as demand for workers increases, have to pay better wages over time. More jobs and better wages mean better opportunities for Australian families to get ahead. That’s our goal.
Higher taxes on businesses in Australia compared to businesses in other parts of the world puts businesses here at a competitive disadvantage. Higher taxes make it harder for businesses in Australia to compete for investment, which makes it harder for them to grow, create more jobs and pay higher wages.
In contrast, a lower, more globally competitive business tax rate here in Australia helps to attract more investment, which is required if we want businesses around Australia to grow and expand, generating stronger economic growth, more jobs and higher wages over time.
Bill Shorten used to recognise this. As Assistant Treasurer in the Gillard Government he made that point very succinctly when he told Parliament that “cutting the company income tax rate increases domestic productivity and domestic investment” and went on to say that “more capital means higher productivity and economic growth and leads to more jobs and higher wages”.
For purely self-interested political reasons he has made a calculated decision to oppose a policy he once fiercely argued for. The economics haven’t changed and the imperative for a globally more competitive business tax rate for Australia is not going away simply because the Labor Party has decided to put politics ahead of our national interest.
The reality we need to confront is that countries around the world have made a decision to lower their business tax rates to help their businesses successfully compete.
In the US, the largest direct investor into Australia by a significant margin, the business tax rate has been cut from 35 per cent to 21 per cent, which means more investment which could come to Australia will remain in the US instead. France, one of only two OECD countries with a higher business tax rate than Australia has already legislated to reduce their business tax rate from 33 to 25 per cent by 2022. The UK has lowered their business tax rate from 30 per cent to 19 per cent and is on track to reduce it further to 17 per cent by 2020.
Australia’s corporate tax rate is now (and is projected to be) the least competitive it has been since at least 1981.
By 2020, we will have the second highest company tax rate in the OECD. As a high-wage, generous social safety net country which will continue to rely on investment for our future prosperity, this is not a viable proposition.
Incredibly, Bill Shorten and others who support his position to oppose a more competitive business tax rate in Australia are helping the ‘top end of town’ and workers in countries we compete with to rip investment, jobs and pay increases away from Australia.
The contradiction at the heart of his position - his shamelessly perfected pitch to voters against the ‘top end of town’ - is that his plan will benefit businesses, including big businesses, we compete with in other parts of the world at the expense of businesses and workers here in Australia. The question he needs to answer is why are businesses and workers overseas more deserving of his support than businesses and workers in Australia?
Any decision to force businesses in Australia to pay more tax than their overseas competitors is a decision to put businesses here, and the Australians they employ, at a deliberate ongoing disadvantage.
This is all common sense. It should be of serious concern that someone who wants to be Prime Minister of our country, a country whose future economic security and prosperity is so dependent on our international competitiveness, has decided to rip up the previous consensus on reforms to keep our economy internationally competitive. Bill Shorten’s populist anti-business and anti-aspiration replacement agenda, if implemented, would make all Australians poorer.
Senator Hanson has publicly argued in recent weeks that we should reduce debt faster, while also arguing that, like the US, we should implement our tax cuts in full immediately instead of phasing them in over time.
We are doing both, getting the Budget to surplus and paying down Labor’s debt, while making our business tax rates more globally competitive.
Implementing them in full immediately would cost us more in the short term, keep us in deficit longer and slow down the rate at which we would pay down debt. Instead we are returning the Budget to balance by 2019-20 and are projected to remain in surplus all the way over the next decade.
We are projected to pay down $30 billion of government net debt over the next four years and $232 billion of net debt over the next decade, taking government net debt from a peak of 18.6 per cent as a share of GDP down to 3.8 per cent by 2028-29.
Our plan is carefully calibrated. By legislating our business tax cuts in full now but in a phased approach (as other countries like the UK have done) helps attract additional investment now and helps avoid any windfall gains for investment decisions businesses have already made. That is because businesses make investment decisions today based on their expectations of future after tax profitability. It is a fiscally responsible approach: announcing a lower, more competitive tax rate over time improves expectations of future after-tax profitability.
Senator Hinch has argued that we should cap our business tax cuts to businesses with a turnover of up to $500 million. This would be bad policy as it would be a disincentive for businesses to grow beyond that cap.
No one put this more succinctly than Bill Shorten when he told a Conference in Melbourne a few years ago that: “Lowering the corporate rate for smaller businesses creates an artificial incentive for Australian businesses to downsize. In worse case scenarios some businesses might actually lay people off to get smaller.”
We support businesses to grow because we want more jobs and higher wages so families can have the best possible opportunity to get ahead.
This month the Senate will have the opportunity to vote for more jobs and higher wages by supporting our business tax cuts. It is in the interest of all Australians, today and in the future, that their Senate passes this important economic reform.
This is an opinion piece published in The Australian on 1 June 2018.
Karen Wu - 0428 350 139