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Wednesday, 29 March 2017
Page: 2538


Senator KETTER (Queensland) (10:54): I rise to speak in relation to the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016. Following on from the comments of Senator Polley, I indicate our concern about this bill. I want to put on the record from the outset that Labor does believe in responsible management of the budget. Labor also believes that a reduction in the small business company tax rate is a way to support Australian jobs and contribute to national prosperity. But we do not believe in fiscal recklessness, and that is what is behind this particular measure.

Before I talk about the measure in more detail, I want to talk about how we have come to this have this so-called centrepiece of the government's economic plan. I want to take a step back for a second and look at the shambolic decision making which has led to the announcement of this enterprise tax plan. I think the other factor here is that we need to look at the broken election commitment of the Abbott government of 2013. They promised to have a comprehensive look at our taxation system.

We know that we had the Intergenerational report. We know there was supposed to be a process following the Intergenerational report—a tax white paper and a green paper. And we know that upon the taking of office of the Prime Minister, following the demise of Prime Minister Abbott, there was basically a canning of the whole process that was undertaken to have a comprehensive look at our taxation system. There were a number of submissions. I think about $5 million in costs were incurred by the public sector in receiving the hundreds of submissions examining those submissions, not to mention examining the work that was done by organisations in contributing to that promised comprehensive review. All of that came to nothing. It was just scrapped for the political objectives of Mr Turnbull.

Then there was a series of thought bubbles that took place last year. Around 12 months ago, the Prime Minister was floating the idea of states assuming some taxation powers. We know that there was also a thought bubble in relation to the GST being increased. All of these things were ill-fated and all of these things were done in the absence of proper consultation. All of this illustrates the chaotic nature in which economic policy is being set by this government. So we did find that the government landed on this so-called enterprise tax plan. This, in our view, is fiscal recklessness. The government has sent a clear message that the AAA credit rating is under pressure. Now is not the time to put in place a structural adjustment that builds to $13 billion a year by the end of the next 10 years.

These are the economic facts. The economy is growing below trend. The unemployment rate has increased and is now close to six per cent. Underemployment is at record highs. There are fewer full-time jobs than a year ago, and wages growth is at record lows. And not only is wages growth at record lows but we also have the threat of a penalty rates cut for low-income workers—700,000 workers around the country potentially. I know that the Treasurer has indicated that, in his opinion, low wage growth is the greatest single threat to our economy. If one looks at the impact of a dramatic cut to penalty rates, surely one can see that that has to be a greater problem for us in terms of economic growth.

It was a Labor government in 2011 that saw for the first time all three ratings agencies award Australia the top sovereign credit rating of AAA. No Liberal government has ever been able to make such a claim. Since taking office the government has mismanaged the budget, tripling the deficit since the 2014 budget and blowing out net debt by $100 billion. So much for fiscal conservatism.

The government continues to receive warnings that the AAA credit rating is under threat. In July of last year Standard & Poor's put Australia's AAA credit rating on a negative outlook. S&P noted that debt could continue to rise unless more budget savings measures are legislated or there are improvements in the revenue outlook. The shadow Treasurer, Mr Bowen, has noted that Standard & Poor's is calling out the Liberal-National government for three years of fiscal failure and passing a vote of no confidence in this government's ability to deal with the budget situation. S&P also noted that, over the next six to 12 month, it would continue to monitor the success of the new government's ability to pass revenue and expenditure measures through both houses of parliament. Now is the time to work on fiscal repair, not to blow out the budget further.

Labor is serious about budget repair. We took a number of policies to the election, including a multinational tax package; abolishing the Emissions Reduction Fund; negative gearing and capital gains tax reform; and reversing the government's tax cut for millionaires. Labor has continued the work of fiscal repair, including changes to last year's omnibus bill that made the bill bigger, better and fairer, including abolishing the baby bonus and the abolition of the family tax benefit part A supplement for families with adjusted taxable incomes above $80,000. Labor is still willing to work with the government on additional savings in areas such as negative gearing and capital gains tax. Labor has a track record, both during the election and in the term of parliament, of delivering on budget repair in a way that is fair.

As the government has indicated, this bill is the centrepiece of its budget and election campaign. A responsible government would have immediately released figures of a long-term structural change over 10 years. But it was not until Labor put pressure on this issue during estimates last year that the Treasury Secretary, Mr Fraser, and not the Treasurer, fessed up on the $48.2 billion cost of this policy.

The government has form in this area, spruiking jobs and growth while doing all it can to hide the long-term impact of its centrepiece policy. We all remember the Prime Minister's train wreck of an interview with David Speers, where it was revealed that the government had no reasonable basis for withholding this valuable public information. The government knows that the release of this figure puts squarely in focus its contradiction of constantly talking about budget repair while wanting to blow a hole in the budget.

The Treasurer spruiks responsible budget management. He says:

Everything we look at in in the budget, every revenue measure we look at in the budget, expenditure and revenue, it must be fit for purpose, it must be sustainable, it must do its job and if it's not doing it, then you've got to change it.

However, when you measure this bill against the Treasurer's own words, a bill which is not sustainable and contains tax measures with questionable benefits, one can only come to the conclusion that it is seriously flawed. According to the Treasurer's own words it needs changing.

The Grattan Institute has commented that the alleged benefits of this bill have not been thought through properly. They state:

It is an article of faith in Australia's business community that corporate tax cuts are the big lever for increasing economic growth. Australia's corporate tax rate is high relative to most developed countries. OECD studies show that lower corporate tax rates tend to lead to higher investment and hence higher economic output. Many studies—including the 2012 Game Changers report for Grattan Institute—picked up this research and highlighted company tax cuts as one of the big opportunities for government to increase prosperity.

Yet ironically legislation to cut the company tax rate over 10 years has been introduced at the precise time that doubts are growing about the payback of corporate tax cuts, especially for countries such as Australia that have dividend imputation systems.

Australia's unusual dividend imputation system means that domestic investors are largely unaffected by the company tax rate since any profits paid to them are taxed at their personal income tax rate. Yet because foreign investors, by contrast, do not benefit from dividend imputation, a cut to the company tax rate provides bigger benefits to them. For those who have already made long-term investments in Australia, a reduction in the tax rate would be a windfall. Many of the international studies about the economic impacts of cutting corporate tax rates are therefore not readily applicable to Australia.

The Government maintains that the change will boost GDP by more than 1 per cent in the long-term, at a budgetary cost of $48.2 billion over the next 10 years. But the best analysis from the Commonwealth Treasury shows that the net benefits to Australians' incomes will be much smaller once profits flowing out of Australia are taken into account. Raising other taxes to compensate for the foregone company tax revenue will create their own economic costs. Because additional corporate investment will phase in slowly, the benefits of company tax cuts for Australian incomes will be a long time coming. And the substantial costs of the measure in the short term could see company tax cuts drag on national incomes for the next ten years. Weighing the balance, it is not clear that corporate tax cuts should be Australia's top priority.

It is very interesting that the Grattan Institute highlights this thinking which has emerged that company tax cuts are not the magic wand or panacea they might have been thought to be some years ago. Economic thinking has moved on but this government continues to grasp onto issues which, whilst they might make a nice headline, are not delivering for the Australian economy and the people of Australia.

The other point about this wonderful windfall for companies is that there is such a huge windfall for the major banks and overseas companies. We note that the benefits of wholesale corporate tax cuts potentially go to foreign investors. And, according to the Australia Institute, the cuts are a $7.4 billion windfall for the largest banks in Australia. We know that the behaviour of the banks has been quite deplorable over the last five to 10 years in particular. To reward that behaviour with a massive windfall in terms of a company tax cut sends a very strange message. It just illustrates the point that it is unusual for a government to be defending the banks from a royal commission at all costs yet at the same time handing out largesse to them at a time when, as we all know, they are making massive profits.

The Australia Institute in its report Company tax cuts: what the evidence shows states:

The BCA’s CEO Jennifer Westacott titled her recent opinion piece on the subject, ‘Start tax debate with right objective: Boosting growth’. The evidence presented here suggests that if there are any growth dividends of lowering the company tax rate they are so weak as to be outweighed by other factors. Neither cross-country comparison nor Australia’s own history lend any support to the ‘tax-cuts-are-good’ thesis. If the aim really is increased economic growth, then Australians would be better advised to ignore the business lobby’s call for lower company tax rates and look seriously at other policies. Australia’s golden age of economic growth, 1945 to the 1970s, was backed by full employment policies and investment in infrastructure, education, science and technology.

I believe that the case for a wholescale tax cut has not been thought through and that alternative measures, such as increased investment in infrastructure, health and education, have not been properly thought through and assessed. Indeed, the Australian Council of Social Service stated in its submission:

If Treasury's assumption that in the long term 45% of the budget cost of a 5% company tax cut is offset by higher growth and increases in revenue from other taxes, this suggests that a net $8 billion in foregone public revenue is being used to 'buy' an improvement in household welfare or spending power of much less than 0.7%. If the Treasury modelling is accurate, this is an underwhelming result.

…   …   …

More substantial economic benefits are likely from a range of other public policies beyond tax reform. These include taking advantage of historically low interest rates to increase public investment in projects vetted by a reputable oversight body; policies to strengthen workforce participation (especially among parents, mature age people and social security recipients); improved urban planning and investment (especially in affordable housing and public transport); and investment in quality early childhood and school education for children at risk of falling behind.

I believe that the government has not properly assessed whether this $50 billion tax cut is the best way to manage the budget when other alternatives, such as investment in infrastructure, education and health, are likely to deliver far greater returns. Given that borrowing costs are historically low and that the RBA has appealed to the government to increase infrastructure spending, infrastructure should be an area where the government can come to the table to work cooperatively with the opposition.

Small businesses make a huge contribution to national prosperity and supporting Australian jobs. Small businesses play a central role in the economy. Over two million sole traders, partnerships, trusts and small employers have helped underpin 25 years of economic growth. Labor stands by its election commitments and is prepared accept amendments to the bill that would, firstly, only reduce the company tax rate to 27.5 per cent for businesses with a turnover of less than $2 million—the threshold that remains consistent with the ATO definition of 'small business'; secondly, only increase the unincorporated small business tax discount from five per cent to eight per cent and only for businesses with a turnover of less than $2 million; and, thirdly, not proceed with the increase to the small business entity threshold. This position, costed by the Parliamentary Budget Office, would save $4.4 billion over the forward estimates and $50.1 billion over the medium term.

Labor also holds to the definition of 'small business' remaining less than $2 million in turnover, as there is not a strong economic justification for increasing that threshold above $2 million. The government's own Treasury modelling clearly states that the objective of reducing company tax is to attract more foreign investment. Delivering tax relief for companies with a turnover of between $2 million and $10 million would attract little, if any, additional foreign investment, as that tends to occur with much larger businesses.

In summary, even according to the standards that the Treasurer has set himself, this bill is not ready to be passed. The budget position has deteriorated under the coalition's watch: the deficit has tripled since 2014 and $100 billion has been added to net debt. The credit-rating agencies are taking a serious look at Australia's fiscal position and now is the time to engage in budget repair in a way that is fair and to make sound investments that promote inclusive growth. The centrepiece of the government's agenda ignores the concerns of the rating agencies and instead ram-raids a $50 billion hit over the medium term. A number of groups have stated that the benefits make take time to emerge. In light of this, more productive investment in infrastructure should be considered in line with the recent RBA comments. According to the Treasurer's own words, this bill is not sustainable and it is not fit for purpose and hence needs changing.

Labor is committed to budget repair in a way that is fair. Labor has recently followed through on its commitment with the recent passing of the omnibus bill. Labor remains prepared to deliver targeted, sustainable tax cuts for small businesses with a turnover of less than $2 million per year while preserving the budget position so that other investments, such as in infrastructure, health and education, can be considered. Labor is committed to responsible budget management and to protect Australia's AAA credit rating. Labor believes that the defending of the credit rating can be achieved at the same time as proper investment in schools, hospitals and infrastructure to achieve Labor's plans for economic growth.

Labor are committed to a budget and a taxation system that link effort and reward in a fair way. We are also committed to taking responsible decisions that improve the sustainability of our public finances, reduce the risk of a credit-rating downgrade and ensure that we can make targeted investments that promote inclusive economic growth. In light of Labor's values and the findings of the inquiry, Labor oppose this bill as is currently stands and call on the government to abandon fiscal recklessness and return to the work of budget repair in a way that is fair, not in a way that means workers will get a pay cut while big businesses and banks get a tax cut.