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Thursday, 9 February 2017
Page: 517


Dr LEIGH (Fenner) (13:21): In my remarks today, I want to deal with the three arguments that the coalition has made for cutting the company tax rate: the first, that Labor once supported cuts to the company tax rate; the second, that other countries have lower corporate tax rates; and the third, that it will boost growth. I want to explain to the House in turn why each of these arguments is wrong.

The coalition first of all claims that Labor, in the past, has supported company tax rates. It is certainly true that Paul Keating took the approach of broadening the base so you could lower the rate. Against the opposition of Liberals and Nationals at the time, Paul Keating brought in things like capital gains tax and fringe benefits taxation. He ensured that our tax base was broader and, in so doing, was able to finance a rate cut. This broadening of the corporate tax base was the same philosophy that underpinned the Gillard government's approach, and then we said at the time we would support a modest reduction in corporate tax of one or two percentage points.

What has changed since then? Unfortunately, a lot has changed since then. In 2013, net government debt in Australia was $184 billion; now, net government debt is $317 billion. Net debt has increased by $113 billion since the coalition came to office. How much is that? That is about $4,500 for every man, woman and child in Australia. So everyone listening to this debate today will be listening knowing that the Liberals have increased the government debt each of them owes by $4,500. If you need an answer to the question, 'Why is now a bad time to cut the corporate tax rate?' the simple answer is: '$4,500 of Liberal-National debt'.

What have they done about that? Have they pulled the debt truck out of storage, maybe upgraded it to a debt B-double? No. They no longer talk about debt. They no longer claim that it matters. But, according to modelling—which did not come out at the time of the budget but was dragged out of the Liberals and Nationals—this is a $50 billion corporate tax cut. According to modelling by Independent Economics, it is a tax cut costing $48.2 billion and, when it is complete—when it is ripe—its annual cost will be $8 billion. That is a massive hit to the government coffers at a time when the government have sent debt soaring. The Liberals and Nationals used to talk as though they cared about debt; now they simply increase debt and say, 'It is no longer a problem; we can just cut the tax base.' That is the philosophical approach that Ronald Reagan took in the 1980s: just ramping up debt, cutting taxes and leaving the problem to someone else. Labor cannot support a cut to the company tax rate when the Liberals and Nationals have so badly increased debt in this country, from $184 billion to the $317 billion currently projected in MYEFO, a near doubling of Australia's government debt.

The next argument they make is that other countries have lower corporate tax rates than Australia and Australia's corporate tax rate is uncompetitive. We can easily move through countries which enjoy strong economic performance yet have corporate tax rates higher than 30 per cent: France, 33.3 per cent; Japan, 30.86 per cent; the United States, 40 per cent. Corporate tax rate comparison across countries is invariably problematic, so here I am drawing on 2016 numbers from KPMG's corporate tax rates table. Australia has a rate, as honourable members know, of 28.5 per cent for small businesses and 30 per cent for everyone else. And the government proposes to bring the overall tax rate down to 25 per cent. A number of other countries have tax rates between 25 and 30 per cent, among them New Zealand, at 28 per cent; Canada, at 26.5 per cent; and Germany, at 29.72 per cent. The fact is that having a company tax rate well above 25 per cent has not stopped countries, like the United States and Germany, from growing strongly.

There is one more little secret that those advocating a company tax cut do not let you in on, and that is dividend imputation, an unusual system in Australia shared in the OECD only by New Zealand. What does dividend imputation do? It gives back a share of the company tax revenue to individual taxpayers. According to Geoffrey Kingston's 2015 analysis in JASSA:The Finsia Journal of Applied Finance, a rough rule of thumb is that dividend imputation gives back a third of company tax revenue. So, in terms of what the government raises, a 30 per cent rate with imputation raises about as much as a 20 per cent rate without imputation. If you hear anyone do international corporate tax comparisons and not mention imputation, you know they are being deeply disingenuous. So Australia's 30 per cent rate raises what Britain's rate of 20 per cent without imputation raises. Those facts are simply ignored by those opposite.

The Treasurer, extraordinarily, in question time yesterday was arguing that I should be supporting a corporate tax cut because my co-author Richard Holden supports a corporate tax cut. The Treasurer seems to have a very unusual notion of how economists work. He thinks that once you have written an article someone you must be in mind meld with them. Every future position they take, you have to take. Clearly, that is the way things work over on the government benches. They are in mind meld about everything, aren't they? Apart from maybe Cory Bernardi, or George Christensen, or the next break-out. The fact is that you can write papers with people and then disagree with them afterwards.

The DEPUTY SPEAKER ( Mr Coulton ): Order! I remind the member for Fenner to refer to members by their titles.

Dr LEIGH: I thank you for that wise comment, Mr Deputy Speaker. The member for Dawson seems to be straying off the reservation. We will see whether or not he is able actually to put his vote where his mouth is next time the vote on a banking royal commission comes to this House. He could not quite manage it on the last sitting day of last year, but let's hope, for the sake of the electors of Dawson, that he is able to do it next time around.

The fact is that powerhouse economies around the world have corporate tax rates comparable with Australia's, ignoring imputation. Take into account imputation, compare us with countries that have rates a third lower, and Australia's corporate tax rate raises approximately what is raised by even the countries with the lowest corporate tax rates in the OECD.

Then we come to the government's argument that a corporate tax cut will boost growth. In order to knock down this argument you have to go no further than the government's own analysis, a paper released on budget night titled Analysis of the longterm effects of a company tax cut. You have to work through this paper fairly carefully in order to work out exactly what the government's argument is. First of all, let's start with the fact that domestic shareholders barely benefit from corporate tax cuts. As the Grattan Institute's John Daley has pointed out, local shareholders only gain if profits are reinvested rather than paid out. Our firms have pretty high payout ratios, so most of the $8 billion annual gain from a corporate tax cut will, in the first instance, go overseas.

The DEPUTY SPEAKER: Order! The debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour, and the member for Fenner will be given an opportunity to conclude his speech at that time.