Pat Conroy (Shortland, Australian Labor Party) Share this | Hansard source

What a ridiculous contribution from the member for Fadden, who must exist in an ahistorical vacuum in which the last four years have not occurred. I know that the last four years have not been good for the member for Fadden and I can understand why he would want to blot them out. But since his party has been in government, they have tripled the deficit and increased net debt by $100 billion. Let me repeat this: for all their cant about fiscal management, they have failed on fiscal policy. They have tripled the deficit, increase net debt by $100 billion and put us on a very dubious trajectory for a balanced budget. That is the context for this debate on company tax cuts.

Unfortunately, that has not been the only ridiculous contribution from the members opposite. My particular favourite was the revival of the discredited Laffer curve by the member for Reid, who is normally slightly more sensible. He is not one of their extremists—he has been quite good on things like 18C of the Racial Discrimination Act—but he was caught out arguing the Laffer curve, which was all very fashionable in the 1980s. It advocated that somehow you could cut taxes and that would increase revenue and pay for the tax cut. It was discredited by the Reagan tax cuts and by the Thatcher tax cuts. Quite frankly, it was beneath the member for Reid, but that is what they have been arguing for.

I will put one simple question to the government: if somehow we are facing this massive crisis of international tax competition, why do the full tax cuts not cut in sooner? We are facing almost a full decade before the tax cuts are achieved and so, if we had some competition crisis, why do they not occur earlier? The truth is: this is a rubbish plan. It is a rubbish plan based on the very dodgy fiscal situation. In the end, when we look at the alternatives this money could be used for, there are much better things that would drive economic growth in this country.

Let us leave aside the language. What do we know about the impact of this bill? We know the fiscal cost—$48 billion of cost to taxpayers in an environment where the deficit has tripled and net debt has blown out. We know that, as revealed by costings done by the Parliamentary Budget Office, we are facing $4 billion interest bill because this will be financed by debt. On top of the $48 billion cost, there will be a $4 billion interest bill. We know from Goldman Sachs, the Prime Minister's favourite merchant bank, that at least 60 per cent of the benefit will flow overseas to foreign investors—at least 60 per cent, because we have in this country a little thing called 'dividend imputation'. It means that domestic investors will not benefit from the tax cut.

We also know—because the government has not refuted it, and they have not even made the effort to put out a media release on it—that the biggest single beneficiary of this tax cut will be the US government. The US Inland Revenue Service will gain eight billion of the $48 billion because of the gap between their tax rate and ours. Basically, they tax their corporations' foreign earnings on the difference between the US tax rate and the tax rate of the home country where the profits are earned. If they reduce their tax rate, and we will see whether that happens, but if they do not, on current tax rates we will see an $8 billion contribution from the taxpayers Australia to the US government. Such is the farcical nature of this plan.

Let's look at the economic theory that this is based on: that somehow we are in a competition crisis and we desperately need to implement this plan, and we need to do it very fast, over 10 years. Somehow we need to do this because we are lagging behind on the investment attraction stakes. Let me confess to the House that there is no firm evidence, if you look at OECD growth rates, that links company tax rates with economic growth. Quite frankly, there is limited evidence about whether there is a relationship between corporate tax rates and investment attraction. Companies invest in countries for a whole of reasons—tax rates being one of them, an educated workforce being another and proximity to markets being a third. There are many reasons that tax rates are not the be all and end all of investment attraction, and every serious economist will acknowledge it.

Let's look at the government's own modelling, which is based on some incredibly heroic assumptions. It assumes that the massive fiscal black hole that this creates, the $48 billion, is either replaced with a non-distorting income tax—I cannot see this government doing it—or a $48 billion cut in government expenditure. They have not fessed up to where they are going to cut the $48 billion of government expenditure, and so it assumes that. The modelling also assumes perfect competition—another furphy that there is perfect competition in Australia. It also assumes full employment—patently untrue. It also assumes that there is zero government debt, a balanced budget and a single representative household. This is the basis of the government modelling that the government has been hiding behind—ridiculous assumption after assumption that thoroughly discredits the modelling.

Let's look at the actual outcome of this modelling. It projects that in 20 or 25 years' time there will be a 0.1 per cent increase in employment. It also assumes that the net welfare gain to households—the real impact on households—is again 0.1 per cent. We are looking at driving a $48 billion hole in the government budget for a 0.1 per cent increase in jobs and economic welfare in 20 or 25 years' time. That is beyond ridiculous, Mr Deputy Speaker, and it shows the economic incompetence of the government.

Let's also look at reputable third parties and what they have said about this tax cut. We have found that the Grattan Institute—no friend of the Labor Party—a centrist think tank—

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