Treasury boss John Fraser backs company tax cuts

Treasury secretary John Fraser has strongly backed the government’s company tax cuts.

Secretary of Treasury John Fraser at a Senate committee in Canberra yesterday. Picture: Kym Smith

Treasury secretary John Fraser has strongly backed the government’s company tax cuts, saying Australia’s competitiveness would be damaged if they were not passed, while senior Treasury staff deny they would represent windfall gains to foreign investors.

Mr Fraser said US company tax cuts, as well as those planned in Britain and France, would have a material effect on the Australian economy.

“One thing is clear after these changes: we will have one of the highest corporate tax rates among advanced economies,’’ he told the Senate economics committee yesterday.

“In a competitive world for corporate capital flows this represents a challenge.’’

Mr Fraser rejected suggestions that the corporate tax cuts would endanger the return to budget surplus. “I can confirm that the corporate tax cuts — we’ve put them into the forward estimates and also put them into our estimates for the longer term. They’re fully funded and we’re working on that basis,” he said.

He distinguished between the Australian approach and that of the US, where the tax cuts are being deficit-funded as a stimulus to the US economy.

“We are a much stronger economy by having a lower level of government debt,’’ Mr Fraser said.”

“I think the balancing of the need to have a sustainable fiscal situation both in terms of surplus and getting our debt to a low level is taken into account in the scope for tax cuts, both personal and corporate.”

Treasury argues that legislating a schedule for the remaining tax cuts, which would lower the company tax rate progressively from 30 per cent to 25 per cent by 2027-28, would give business the confidence to raise investment.

Mr Fraser said lower tax rates would promote greater investment, which would yield higher productivity and, as a result, higher wages. He said this was supported by economic modelling, but he said that had its limits. “My own view is it’s beyond the modelling we do because it’s about animal spirits.” He said this was evident in the early response to the US company tax cuts.

He said his own personal ­experience as a businessman ­before rejoining Treasury three years ago showed that tax was a big factor in deciding where ­investment would be directed.

Treasury principal adviser ­Michael Kouparitsas rejected Labor suggestions that company tax cuts would simply enrich foreign investors, while Australian investors had the benefits neut­ralised by dividend imputation.

He said any short-term gains for foreign investors would soon be neutralised by a faster inflow of capital from competing businesses. “It is quite possible that with the advance announcement, the capital could flow to Australia and be in place before the tax cuts occur. Companies are making decisions on the present value of their future stream of profits, so there may not be any windfall at all,’’ he said.

Tax Commissioner Rob Jordan, who also appeared before the Senate committee yesterday,­ ­defended the integrity of company tax collections, noting that company tax was a higher share of total tax collections in Australia than in any other country except for Norway.

“Relatively few companies pay a large part of that, and therefore we can have strong assurance over that,’’ he said.

Mr Jordan rejected assertions that many listed companies were avoiding tax.

“There is a strong correlation between the 25 to 30 per cent of companies on the stock market making a loss and the 25 to 30 per cent that don’t make tax payments,” he said.