Ed Husic’s corporate tax push puts Jim Chalmers under pressure

Jim Chalmers has sidestepped calls from Ed Husic to pursue more competitive company tax and investment allowance settings, sparking claims the Treasurer’s authority is being undermined.

Industry Minister Ed Husic has backed long-term corporate tax reform and consideration of investment allowances to turbocharge capital investment. Picture: NCA NewsWire / Martin Ollman

Jim Chalmers has sidestepped calls from Industry Minister Ed Husic for the government to ­pursue more competitive company tax and investment allowance settings, sparking Coalition claims that cabinet colleagues are undermining the Treasurer’s authority.

The Treasurer refused to ­endorse Mr Husic’s intervention on corporate tax, which falls under Dr Chalmers’ portfolio, ­despite business leaders, industry groups and economists backing a renewed debate over Australia’s globally uncompetitive company tax regime.

In the first major signal that senior Labor figures are softening their previous hard opposition to changing the 30 per cent tax rate for companies with turnovers above $50m, Mr Husic on Tuesday indicated support for either a lower threshold or economy-wide investment allowance.

Speaking at an AFR AI summit, Mr Husic said corporate tax reform and investment allowances must be “considered” to help unlock investment and capital. After Labor rejected the Turnbull government’s move in 2018 to cut company tax rates for larger companies to 25 per cent, Mr Husic said opposition to a more ­competitive corporate tax regime was diminishing because wages were increasing.

Asked in question time if he endorsed Mr Husic’s call for a ­reduction in the company tax rate, Dr Chalmers claimed it was “entirely consistent with the sorts of things that we have been saying for some time”.

Dr Chalmers said he was “proud to work” with Mr Husic to incentivise production and ­investment in manufacturing. Seizing on Mr Husic’s comments, the Coalition said Dr Chalmers’ “colleagues are rolling over him”, while the Greens ­accused the ­government of being “massively out of touch” during a cost-of-­living crisis.

As Labor figures talked down Mr Husic’s comments, the Business Council of Australia, Australian Industry Group and Australian Chamber of Commerce and Industry backed a push for lower company tax rates and investment allowances.

The Australian understands senior cabinet figures tried and failed to convince Dr Chalmers to include a more generous investment allowance in the May 14 budget. With big business not confident of winning support to lower corporate tax rates, the BCA has advocated for an economy-wide 20 per cent investment allowance to “grow GDP by $17bn and boost wages”.

Australia’s corporate tax rate is the third highest among OECD countries, behind only Portugal (31.5 per cent) and Colombia (35 per cent), and on par with Costa Rica and Mexico.

Dr Chalmers, who has been criticised by business leaders and economists for not backing more ambitious tax reforms, has previously said he wasn’t “considering changes to the company tax rate”. Following the release of the International Report last August, the Treasurer said “I don’t have an ideological aversion to changing headline company tax rates but it’s not something that the budget can afford right now”.

Mr Husic, who has been more outspoken than cabinet colleagues on Gaza and the government’s intervention in the gas market, said corporate tax reform or investment allowances must be “considered” in the long term.

“Any discussion around corporate tax reform needs to be able to entwine both the benefits for capital and for labour. I think that’s where we probably will be likely to head,” he said.

“But I’ll be very careful about how much I say if you don’t mind, because I’ve got a cabinet colleague in the form of the Treasurer who manages the tax revenues. Talking about company tax has been a challenge in times past, largely because people felt that where profits, pre-pandemic, were performing quite well and wages were stagnating, that it was really tricky to be able to have that conversation.”

ANU Tax and Transfer Institute director Bob Breunig ­endorsed lowering the company tax rate to at least 25 per cent.

“The evidence and the theory is good for workers: that cutting the corporate tax rate creates more jobs, creates more productivity, and creates higher wages,” he said. “The evidence is really strong that it also increases investment. The estimate from Europe is that a 1 per cent cut leads to 4 per cent additional ­investment.”

Amid global competition for capital, KPMG chief economist Brendan Rynne said “we still have a company tax environment that is uncompetitive compared to the rest of the world”.

The 2010 Henry Tax Review warned Australia’s company tax rate was well above the level of other advanced economies and had become more uncompetitive over time. It recommended a ­reduction to 25 per cent as part of a wider reform of the tax base.

The US has moved from one of the highest rates – at 39 per cent in the mid-2010s – to 25.8 per cent, not least due to the massive cuts delivered under president Donald Trump. The corporate income tax rate in France over the past decade has plunged from 38 per cent to 25.8 per cent.

BCA chief executive Bran Black said he was “pleased the federal government seems open to have this conversation ­because its pipeline of new economy initiatives, particularly through its ­Future Made In Australia Act, will rely on a competitive tax rate to drive private investment”.

AiGroup chief executive Innes Willox backed Mr Husic’s comments and said lowering the company tax rate “is a chance to reboot a substantive discussion on tax reform”.

ACCI chief executive Andrew McKellar said businesses “will embrace the need to reconsider corporate taxes … lowering the corporate tax rate or introducing investment allowances are critical measures that can drive business investment, spur economic growth and ultimately benefit all Australians”.

Opposition Treasury spokesman Angus Taylor said Mr Husic’s intervention highlighted “just how confused this government’s economic priorities are”.

“All Labor’s done over the last two years is increase company taxes. The Industry Minister is calling for company tax to be lower. Our economy is suffering from this lack of clarity. Jim Chalmers is a weak treasurer and his colleagues are rolling all over him,” Mr Taylor said.

Greens Treasury spokesman Nick McKim said “instead of reducing corporate taxes, we should be introducing a super-profits tax to make sure that the corporations who have driven inflation contribute to a fairer society”.

Less the a year out from the next election, Anthony Albanese on Tuesday issued a rallying cry to Labor MPs.

Speaking to the Labor caucus in Canberra, the Prime Minister said cabinet was working on “crafting the offer” to voters for a second term and urged MPs to sell key budget measures, including tax cuts from July 1, energy ­rebates for all Australians and the government’s Future Made in Australia policy.