Time for Turnbull to push policies more popular with electorate

The economic case for reducing company tax rates across the board is compelling. The difficulty of making the political argument, however, is extremely high given Labor’s hypocritical opposition to any further company tax cuts.

Let’s be clear, Australia’s rate of company tax of 30 per cent for larger companies, even in the context of dividend imputation, makes us uncompetitive on the world stage. We are approaching the point where we will have one of the highest rates of company tax among developed economies.

Even socialistic countries, such as France and Sweden, have recognised the need to reduce their rates of company tax. Company tax in the UK is being cut to below 20 per cent.

A game-changer has occurred with the US government’s decision to immediately cut its (federal) company tax rate to 21 per cent.

For Australia, the decision to produce a drawn-out plan to cut company tax from 30 per cent to 25 per cent that would not be fully implemented until 2024-25 was always misguided.

Either it was a good idea to reduce company tax rates or not. Waiting for the expiry of two terms of government before the full plan would be implemented was extremely ill-conceived.

If we expect companies to invest more, to expand, to increase the wages paid to workers — all as a result of lower company tax rates — this could not be on the basis of the uncertain outlook of tax cuts down the track. After all, there is always the possibility that a duly elected government in the future could overturn the plan.

In the meantime, the political pain for the Coalition is likely to be ongoing. There is little doubt that Labor’s highly misleading claims about handouts to the big end of town and $17 billion tax cuts for the big banks resonate with large numbers of electors.

The alternative for the government is to concede that the final part of the enterprise tax package will be impossible to legislate and to redirect the monies released (they are costed in the forward estimates and in the longer-term budget plans) to other ends. Bigger cuts to income tax rates or more rapid repair of the budget — this latter would be outbidding Labor — are possibilities.

The truth is the Turnbull government has never made a very good fist of explaining the rationale for company tax cuts. Sure, they have secured tax cuts for small and medium-sized businesses. There is a case for leaving it there. Labor is unlikely to reverse these cuts. There will come a time down the track when an Australian government has no alternative but to cut company tax rates to regain international competitiveness. But there will need to be much more preparation in terms of explaining the reasons to the public.

After Super Saturday, the Turnbull government may be better advised to eat humble pie by calling off any further company tax cuts and turn to other policy changes that might be more popular with the electorate, such as reducing electricity prices and restricting immigration.