Donald Trump’s tax package a wake-up call for Australia

Like most political leaders, Donald Trump will need the support of congress to enact his proposed tax reforms. In so far as the President succeeds, his bold proposal to cut the US corporate tax rate from 35 per cent to 20 per cent and simplify the tax system will boost US competitiveness in retaining and attracting business investment. Seven individual tax brackets also would be collapsed to three; standard deductions doubled; deductions for state and local taxes eliminated; and estate taxes eliminated. It’s no wonder, as business columnist Robert Gottliebsen wrote online yesterday, that Wall Street now is taking Mr Trump seriously.

Conversely, the package will make Australia even less attractive as a destination for such investment, which is bad news for business and jobs on this side of the Pacific, as the Business Council of Australia warned yesterday. That’s why our political class, especially Bill Shorten and his frontbench, whose “big taxing, big spending” class warfare mindset belongs to the less competitive world of a half-century ago, needs to start taking tax reform, especially corporate tax reform, seriously. The US remains by far the largest business investor in Australia, accounting for 27 per cent ($860 billion) of incoming investment last year, followed by Britain (16 per cent). Hong Kong ranked fifth place and China seventh. About 28 per cent of outbound investment from Australia went to the US. Nations such as France also are cutting their business taxes. Every such reduction, as BCA executive Jennifer Westacott said, was “a de facto tax increase in Australia and a disincentive for investors”.

In May, in his budget reply speech, the Opposition Leader could barely conceal his disdain for those who generated wealth and jobs, dismissing the Turnbull government’s vital corporate tax cut plan as “a $65bn giveaway for big business”. In maintaining that view, as opposition Treasury spokesman Chris Bowen did yesterday, Labor is disowning the legacy of the Hawke-Keating years when the then party of reform cut the company tax rate from 49 per cent to 33 per cent to boost incentive. It positioned the nation for decades of growth.

Mr Shorten wants Malcolm Turnbull to adopt all 50 of the Finkel report’s recommendations, including a clean energy target, under a bipartisan energy and climate policy. It is far more important, especially in light of Mr Trump’s speech in Indiana, that Labor agrees to retain the Coalition’s tax cuts, passed by the Senate in March with crossbench support, for businesses with turnovers of up to $50 million. Labor backed the cut only for companies with a $2m turnover or less. The party also should reassess and back the Prime Minister’s original proposal to decrease the rate on all companies from 30 per cent to 25 per cent by 2026. Mr Shorten’s fatuous observation post-budget that Coles was not a small business ignored the fact big businesses are big employers, subject to competitive pressures in the international economy.

One of the most constructive arguments for corporate tax cuts was made in November 2010, when an up-and-coming minister in the Gillard government said that to “keep all sectors of our economy competitive in their own global markets … we should never forget that we are just one option for international investors — we have to make sure we offer the most compelling value”. The impeccable reasoning came from the then financial services and superannuation minister. Mr Shorten should dust off those notes rather than aim to lead our biggest spending and taxing regime.