Labor’s corporate tax plan milks the job creators

Opposition Leader Bill Shorten during question time yesterday. Picture: AAP

Labor’s surprise corporate tax-cut rollback will do more harm than simply transfer about $20 billion, over 10 years, from productive businesses to various “health and education” projects of questionable value.

It will exacerbate what’s looking like a permanent kink in the nation’s corporate tax system, in which some businesses pay 27.5 per cent or 25 per cent while other, larger firms pay 30 per cent. This is poor policy. Few governments tax companies — legal entities, after all — at different rates.

To its credit, the government’s tax plan — however slow its implementation — envisages a rate of 25 per cent for all incorporated businesses by 2026. Labor’s determination to lower the threshold from a scheduled $50 million to $10m not only keeps the distortion, it arguably makes it worse.

The share of businesses with revenue of about $10m is far greater than $50m, meaning any impact on the company’s decision-making — Shall we bother getting larger? Should we incorporate? — will be greater.

In any case, small companies are no more deserving of a lower tax rate. It’s big business that’s created most jobs since the government introduced a lower corporate tax rate for smaller firms in 2015.

ABS data shows firms with fewer than 20 staff, which employ 44 per cent of workers, generated less than 18 per cent of new jobs since July 2015. Small-business employment rose 0.9 per cent to 4.77 million over the two years to July 2017, while employment by all businesses rose 2.3 per cent to 10.88 million.

Labor’s crackdown is bizarre politics too: it has already telegraphed to voters, for more than two years, that it disapproves of tax cuts for big business. It thinks this is a winning formula, but about 20,000 businesses, on the government’s count, would pay higher tax as a result of this latest announcement.

Labor has already announced about $220bn of tax increases planned for the next decade. It told The Australian it was awaiting a revenue estimate from the Parliamentary Budget Office.

Labor said it would update its 2016 election costings, which included removing any tax cuts for companies with turnovers above $2m. “We haven’t presented updated accounts and won’t until the next election,” a spokesman said.

Pity the uninterested voter having to navigate costings debates.