Opinion: Turnbull’s company tax cuts are poison to a cynical public impacted by wage stagnation

IN THE current climate it take more to change sceptical hearts and minds than a hysterical government scare campaign and the promise of corporate tax cut trickle-down, writes Paul Syvret.

THE Turnbull Government had lost the case for corporate tax cuts even before the leaking of two quite incendiary internal Business Council of Australia material documents.

The embarrassing BCA material merely underscored the fact that the hugely expensive tax plan would be of minimal (if any) benefit to working Australians, and any “trickle-down” effect would be as meaningful as the water flow in the Murray-Darling’s lower reaches after a dry spell.

The first of the BCA bombs was a leaked survey of members that revealed fewer than one in five businesses would pass the tax cuts on in the form of higher wages or staff appointments. Instead, the vast majority of businesses surveyed said they would use the extra funds to increase returns to shareholders or invest in the company.

The second rather uncomfortable leak came just after the chief executives of 10 of Australia’s largest companies wrote an open letter to the Senate promising that if wavering senators passed the Government’s package, “we, as some of the nation’s largest employers, commit to invest more in Australia, which will lead to employing more Australians and therefore stronger wage growth as the tax cut takes effect”.

The Turnbull Government had lost the case for corporate tax cuts even before the leaking of two quite incendiary internal Business Council of Australia material documents.Above Finance Minister Mathias Cormann. Photo: AAP

The draft of this missive, however, contained five pledges, later removed, including to create more jobs, avoid offshoring, increase wages, and to “pay our tax and show our commitment by signing the ATO’s tax transparency standard”.

Clearly this was a bridge too far for our corporate titans, especially given the US experience following President Donald Trump’s move to cut the corporate tax rate there from 35 per cent to 21 per cent at a cost of $US1.5 trillion ($1.95 trillion).

In the wake of those cuts, US companies have announced more than $US200 billion in share buybacks, with expectations the total will reach $US800 billion by year’s end.

Meanwhile, a Morgan Stanley survey estimates just 13 per cent of tax cut benefits will flow through to workers.

Our Government’s determination to press ahead with tax cuts would appear to be driven by a combination of rent seeking from the business lobby and the furphy that Australia has to race to the bottom to remain competitive.

The embarrassing BCA material merely underscored the fact that the hugely expensive tax plan would be of minimal (if any) benefit to working Australians. Above, BCA chief Jennifer Westacott last year.

The latter argument is particularly simplistic, especially since Australian companies pay 17 per cent tax on average (after deductions); we have a dividend imputation system, while most other nations do not; and, unlike America, our states and territories do not levy their own corporate taxes.

The Government’s reform agenda, such as it is, is a very narrowcast attempt to play to its business base in the hope that the confidence fairy will sprinkle her dust further than companies such as BHP, Fortescue Metals, Wesfarmers and the big four banks.

For voters worried about financial security, this simply isn’t going to bite – especially when widespread corporate tax minimisation is front and centre in the news.

As Ben Oquist, executive director of The Australia Institute, points out, the strategy ignores more generational economic issues, such as “the very nature of the future of work in an age of automation; big data and AI; the energy revolution in an age of climate change; and the growing curse of inequality”.

The Labor Opposition is prosecuting the case for reining in some of the excesses of the noughties. Above, Labor Leader Bill Shorten, right, with Shadow Treasurer Chris Bowen. Photo: AAP/Dan Peled

Ironically, we have a Coalition government – traditionally regarded by voters as the better economic manager – presiding over a large Budget deficit and debt of $520 billion (up $250 billion from when it was elected); one that seems hell bent on the long-term largesse that gave us our structural problems in the first place.

On the other hand, we have a Labor Opposition prosecuting the case for reining in some of the excesses of the noughties by tackling areas such as negative gearing, capital gains tax discounts, superannuation tax breaks, and winding back cash payments for surplus dividend imputation credits.

In the current climate, it takes more to change sceptical hearts and minds than a hysterical government scare campaign and the promise of corporate tax cut trickle-down.

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