Tim Watts (Gellibrand, Australian Labor Party) Share this | Hansard source

With the possible exception of this government's proposal to weaken Australia's racial hatred laws as a sop to One Nation, there is no bill more reflective of the sorry state of the Turnbull government than the bill before the House today. At the last federal election the Prime Minister told Australians that he had a plan for 'jobs and growth'. This is apparently is the three-word slogan that you have when you have promised not to have three-word slogans.

Extraordinarily enough, almost 12 months later, the bill before the House is the core of this definitely not-just-a-slogan jobs and growth economic policy. It cuts its corporate tax rate from 30 per cent to 25 per cent for all corporations progressively over a 10-year period. It gives foreign multinationals and Australia's big banks a $50 billion tax cut. This unfunded $50 billion tax giveaway will allegedly, according to Treasury modelling, increase growth in Australia by one per cent in a decade's time.

This bill is no way to make economic policy and it is no way to make tax policy. Paul Keating—someone who the Prime Minister mistook himself for in this chamber earlier this week—used to say that leadership is about courage and imagination: the imagination to see the potential for change and to have the vision to see what we could achieve by doing something differently; and the courage to pursue that change to make it a reality in the face of vested interests and institutional inertia. There is no courage and there is no imagination in this bill. This bill shows no imagination, no vision, for the role that tax reform could play in kick-starting economic growth in this country. It shows no effort in thinking about how we could redesign a tax system so that it would better serve the Australian economy and no effort in thinking about the role that the tax system could play in improving allocative efficiency in the economy.

The bill ignores the outrageously profligate and distortionary impact of the operation of the capital gains tax discount and negative gearing on investment decisions in this country. It ignores outrageous superannuation concessions; it just cuts taxes for big business. It is right-wing economic policy from central casting. It is a lazy cut-and-paste job from the favourite think tanks who cut-and-paste it from their favourite ideologues without a care for the actual conditions in the Australian economy and without any effort to imagine the potential for real reform.

Take the outrageous distortionary effect that the combination of negative gearing and the capital gains tax discount is having on investment decisions in this country. Before the Howard government introduced these changes, with trademark economic irresponsibility at the turn of the millennium, barely 50 per cent of the loan portfolios of Australian banks went to housing investment. Sixteen years later more than two-thirds of Australian bank lending currently goes to housing investment, but it is not going to Australians breaking into the property market to buy their first home. First-home buyers make up just 15 per cent of housing purchases today, well below the long-term average. Instead, bank lending that might otherwise have been made to Australian businesses to create the jobs and growth promised by the Prime Minister is being thrown hand over fist into property speculation.

What is the benefit of these tax arrangements? Who benefits from them? For negative gearing, the top 20 per cent of income earners earn about half of the negative gearing benefits, according to NATSEM. The top 10 per cent capture more than the bottom 60 per cent. The benefits for the capital gains tax discount is even more inequitable with the top 10 per cent receiving nearly 70 per cent of the total subsidy. The government's own Financial System Inquiry found that 10 per cent of Australians receive 38 per cent of Australia's super tax concessions—more than the combined benefit of the bottom 70 per cent of Australians. These investment subsidies come at a significant cost to the budget, which means that other taxpayers have to pay higher taxes or accept lower quality services.

Labor's reforms of negative gearing tax subsidies have a different objective. They are aimed at shifting the incentive of the taxation system—shifting the allocative efficiency of our economy—towards the construction of new housing and not property speculation. Independent modelling by the Parliamentary Budget Office assumes that those changes will result in negatively geared investment in new dwellings almost doubling. This is a tax reform agenda that might actually kick start jobs and growth. Instead, we get the bill before the House today, and the myopia of this economic agenda is a function of this government's political weakness.

The Prime Minister and the Treasurer have already burned through all of the political capital that they accumulated when they deposed the unlamented member for Warringah. Their economic and political credibility was sacked by six months of government by thought bubble, variously floating an increase in the GST, broadening the base of the GST, state based income taxes and crackdowns on the excesses of negative gearing—all for naught.

As a result, we have been left with the weakest economic leadership team of any government since Billy McMahon. We have a Prime Minister who does not believe what he is saying, a Treasurer but no-one believes what he is saying and a Deputy Prime Minister and no-one can understand what he is saying. What we are left with is a massive tax cut for vested interests. It is the only tax policy that this Treasurer has the clout to get through the cabinet, and it is the only tax policy that this Prime Minister can be confident of getting through his party room without them wanting to knock him over. That is why they will not do negative-gearing reform. That is why they will not do reform of the capital gains tax. It is not about policy; it is because they are too scared and they are too weak.

Given that the Prime Minister promised economic leadership when he seized the top job from the member for Warringah, the current state of affairs might prompt a wry smile—it might, if the consequences were not so serious. Australia's economic situation is not strong presently. There is a need for strong economic leadership in this country today, with 34,000 full-time jobs being lost in Australia last year. Wages growth is at an all-time low—the lowest on record. Inequality is at a 75-year high and living standards are stagnating. Underemployment—the number of people in this country who want to work more but cannot get the opportunity—is at a record high, and we experienced only our fourth negative growth quarter in 25 years this year.

The MYEFO shows that deficits over the forward estimates have blown out by another $10 billion and, since the first budget, the budget deficit for 2017-18 has blown out tenfold from $2.8 billion to $28.7 billion. The projected surplus under this government in 2020-21has shrunk and is now wafer-thin, leaving us in the danger zone when it comes to the AAA credit rating that the previous Labor government bequeathed to the Abbott-Turnbull—maybe Abbott again—government. A weakened economy has also delivered more than $30 billion in revenue writedowns. But it is clear from this bill that this government has no plan for economic growth. After railing on about the importance of the AAA credit rating in opposition—after saying that we were in a budget emergency and saying how important budget repair was to keeping our AAA credit rating—what have they done instead? They are putting a larger hole in our budget with this tax cut.

You do not have to be an economist to know that this economic mismanagement will ultimately put our AAA credit rating at risk. A downgrade in our AAA credit rating would impact everyone in Australia. Mortgage holders would be slugged an extra $720 a year if we lost our AAA credit rating. The Prime Minister says that he wants to help families, but instead he is playing roulette with household budgets. Not content with taking away the penalty rates of 700,000 Australians—taking $77 a week from the take-home pay of Australians—he is also putting the AAA credit rating at risk.

The bill before the House is not even a new plan. It was announced almost 12 months ago. Why have they brought it out again now? Why is it coming only to the chamber now? It is because they have nothing else to offer. They have no answers for the problems that Australian families are facing. Imagine what this country could do with this $50 billion forgone by this bill. Imagine the schools that we could fund, the training and apprentice opportunities we could create, the productive infrastructure we could build and the investments that we could make in productive capital—human and physical—for our nation. Instead of helping young Australians buy their first home, this government wants to gift this forgone revenue straight to big businesses and to big banks.

As it stands, this bill does nothing to help balance the budget. Meanwhile, as we wait for a plan from the government, the PBO has reported that unlegislated measures are costing huge amounts of money. The impact of the government's unlegislated measures in 2020-21 will be 0.2 per cent of GDP—double that of the projected surplus. There is a projected $42.8 billion black hole in the budget.

Listening to the government's explanation for why this bill should be passed is like listening to a snake oil salesman. The Treasurer claims we need to protect the revenue base from structural weaknesses, and yet here we are giving away $50 billion in revenue cuts. The Treasurer claims that Australia's competitiveness will decline if we do not cut the company tax rate, and then there is the argument about the international competitiveness that we need to be on par with with other developed economies—they use the United States as an example. What they will not tell you, though, is that in the United States companies will also have to pay state taxes on top of the headline federal company tax cut. Comparing our headline rate against theirs is like comparing apples and oranges. The Australian people are not stupid. They will not be sold a pup. They can see when the government is trying to pull the wool over their eyes.

The Prime Minister says this tax cut will benefit Australian families. They say that this bill will result in a 1.1 per cent increase in wages—roughly a $2-a-day increase. That is not much of a consolation for the 700,000 Australians who are losing $77 a week as a result of the government's inaction in the face of cuts to penalty rates. However, what they will not tell you is that this $2-a-day increase will not come this year, will not come next year and will not come in 10 years but will arrive in 20 years time. It does not pass the pub test. They want to rip $50 billion from the Commonwealth budget—the budget that supports Medicare, schools and family payments—and for what? A $2-a-day increase in 20 years?

The Prime Minister wants to smash the federal budget, putting our AAA credit rating at risk, so that families can receive a $2-a-day increase in wages in 20 years. Can you imagine taking this to your bank manager? Can you imagine walking into your bank and saying, 'I'm looking for a loan,' and the bank manager asking, 'What do you earn? What are the details on your wages?' and you saying, 'Here's what I earned today, but the Prime Minister has promised that in 20 years I'll earn an extra $2 a day!' It simply would not cut it.

This proposed tax cut does not take into account that many big companies use complex profit-shifting mechanisms to avoid paying tax or to reduce their tax. According to the ATO, big business already pays less than the 30 per cent rate. Data shows that members of the Business Council of Australia already pay an effective tax rate of just 24.3 per cent. Treasury modelling showed that the planned tax cuts would boost economic growth by a little bit, but there is no way to compare that increase—one per cent in 10 years time—with the economic growth we could have if we invest that money in the productive capacity of the Australian economy and invest it in our education system, in the health of the Australian population and in jobs for the Australian population, including apprenticeships.

The government has provided no answers on how to deal with the revenue shortage created by this bill or on the inherent consequences that it would produce in the form of severe cuts to important social services such as Medicare to enable this tax cut for big business.

This government is out of touch with ordinary Australians. Some call the policies of the Prime Minister and his Treasurer neoliberal. I prefer to call them neo-Martian, because they are policies produced by someone on another planet, someone who has not come into contact with Australians living their lives in our community in quite some time.

The Australian Labor Party, by contrast, want to help young people buy their first home in an increasingly unaffordable housing market. We want to invest in health care. We want to invest in our schools. We want to invest in infrastructure. We want budget repair to protect our AAA credit rating, but we want budget repair that is fair.

Offering a tax cut to big business of $50 billion unfunded will not leave Australian families better off. That is why Labor will oppose this reckless tax cut. We will oppose the bill in the House and we will move amendments in the Senate to reflect the position that we have consistently had for 12 months now. We will not support the corporate tax rate going to 25 per cent. We will support the tax rate going from 28.5 per cent to 27.5 per cent for businesses earning up to $2 million. Labor will not support the increase in the small business entity threshold from $2 million to $10 million. Labor will not support the unincorporated small business tax discount going from five per cent to 16 per cent. We will support an increase to eight per cent, matching the corporate tax rate for businesses earning up to $2 million going to 27.5 per cent. If the government cared about the welfare of Australian families, they would do the same.

Now, as this legislation comes before the House, we see the final irony of the Turnbull government's economic weakness. We learn that the Turnbull government will not even commit to maintaining its support for this 10-year corporate tax cut plan at the next federal election. We learn that the Treasurer is planning to split this bill to secure the first phase of this plan. But, beyond this, the fate of this bill rests with the strength of the economic leadership of the government, and its prospects are not good.

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