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

Before I begin on the bill in question, I want to associate myself with the remarks from the chair just now. I know that's the feeling of members across this parliament. The people who spoke on this motion were some of the best people in the parliament, in my view, including the member for McMillan and especially the member for Hotham. That is a tribute to Mickey Gordon. Given how we in this building loved him, I can only imagine what his family must be going through at this point and the scale of their loss. I just want to record my thoughts on that matter and thank the chair for that opportunity.

Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

The chamber thanks you for your contribution.

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

On the bill in question, the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017, Labor will not be supporting this $65 billion tax cut for business. That is not news to anyone who has been following the political debate in recent times. But it is worth noting in the chamber here today the symbolic value of this bill because it highlights the Turnbull government's ideological blinkers. It's worth noting its lack of economic courage and imagination, lack of vision, lack of leadership and lack of foresight for the kind of country that we want Australia to be. This bill represents the wrong plan for Australia, the wrong plan for economic growth, the wrong plan for wages growth, the wrong plan for fighting inequality, the wrong plan for increasing Australia's competitiveness, the wrong plan for working Australians and, certainly, the wrong plan for budget repair.

It's the wrong plan for economic growth. We know this because of the government's own figures. Since this bill was first introduced—the whole package of the bill, not just the bits that the government has been able to get through the parliament so far—the economic growth dividend of this bill is one per cent of economic growth in 20 years time. We ought to fight for every scrap of economic growth we can in this parliament. Economic growth benefits all of us—it helps us to fight inequality and helps us to increase our quality of life—but what a paltry return for a $65 billion unfunded cost to the budget. I highlight that because the opportunity cost of this bill is significant. This is $65 billion that could be invested in the education of Australia's children, something that would have a dividend for economic growth. This is $65 billion that could be invested in the skills of the Australian workforce. This is $65 billion that could be invested in infrastructure, increasing the productivity of the engines of economic growth in our nation, cities—the 0.2 per cent of Australia's landmass that currently produce around 80 per cent of Australia's economic activity.

Indeed, nearly 70 per cent of Australian GDP is generated within the cities of Sydney and Melbourne. The productivity of these areas is crucial to the success of our national economy. Despite this, we see no vision from the Turnbull government for investment in urban infrastructure. The Deputy Prime Minister, the new Minister for Infrastructure and Transport, has outlined no vision for the role of his portfolio in doing this. Certainly, the New South Wales Deputy Prime Minister, taking a similar approach to the New South Wales Prime Minister, is not allocating funding for Victoria. Victoria has 9.7 per cent of federal infrastructure budget spending despite having 25 per cent of the population and being the growth engine for Australia in both population and economic terms. Where is this government's vision for infrastructure investment in Victoria?

This bill is also the wrong plan for wages. As the Reserve Bank governor has noted, a lack of wage growth in this country is the real crisis in our economy. Over the last 10 years, real labour productivity grew by 20 per cent, while real wages grew by only six per cent. Wages share of GDP is well below the average of the last 50 years. Wages growth is the lowest since we started collecting records. If that's not bad enough, the Reserve Bank has warned workers to expect stubbornly low wage growth for some time yet. Despite the Treasurer's claims of better days to come—the cheque's in the mail—workers are not seeing that impact on the hip pocket.

There's plenty that this government could be doing to help wages growth in this country. They could be looking at boosting the minimum wage, changing the rules for enterprise bargaining or taking an aim at provisions which allow employers to terminate workplace agreements and force workers back toward minimums. There's plenty more that could be done in reducing the gender pay gap, making industrial relations more user-friendly for small businesses, bringing intractable workplace disputes and negotiations to an end, making the Fair Work Commission easier to access, providing job pathways for people with disabilities, tackling discrimination of older workers so that they stay in the workforce and earn wages for longer, and helping younger people enter it in the first place. These are things that the government could be doing to increase wages growth, not cutting company taxes.

We know that corporate tax cuts do not directly lead to wages growth. As Michael Keating AC, the former head of the departments of Employment, Industrial Relations, Finance, and Prime Minister and Cabinet of the great Labor governments of the eighties and early nineties, recently wrote:

Despite the evidence of the last few decades that 'trickle-down' economics doesn't work, big business and its apologists in the media are calling for a company tax cut to stimulate investment. The reality, however, is that increased investment is principally in response to increasing aggregate demand. The required increase in aggregate demand in turn requires less inequality and faster wage growth, not bigger business subsidies.

What Michael Keating is saying in that statement is that companies don't invest because of the scale of their profits; they invest because of the scale of their markets. They invest when they think they'll earn a quid. That's the challenge that we need to be fighting. If we want to increase the size of markets in Australia, we have to tackle inequality; we have to tackle the spending capacity of middle- and working-class Australians.

This bill is the wrong plan for tackling inequality in Australia. Inequality is at a 75-year high in Australia. Over the last four decades, real wages growth of the top 10 per cent of income earners has grown by 72 per cent, more than three times the rate of increase for real wages than that of the bottom 10 per cent of income earners.

A division having been called in the House of Representatives—

Sitting suspended from 16 : 44 to 17 : 08

As I was saying, inequality in Australia is at 75-year highs, and over the last decade real wages for the top 10 per cent of income earners have grown by 72 per cent, which is three times the rate of increase in real wages for the bottom 10 per cent. If we want to do something about increasing aggregate demand in the Australian economy, we need to do something about inequality. We need to do something about the spending capacity of working-class and middle-class Australians.

And it's not just me saying that. It is economic heavyweights around the world who have said that inequality has gotten so far out of kilter that it's now acting as a brake on growth around the world. Indeed, Nobel prize winning economist Joseph Stiglitz has argued that we can no longer talk about rising inequality and sluggish economic recovery as separate phenomena; they are in fact intertwined. Inequality stifles, restrains and holds back growth. The IMF has agreed, finding:

If the income share of the top 20 percent increases by 1 percentage point—

and this is what's happening in Australia—

GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down. Instead, a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.

The OECD echoes these points, noting that:

Rising inequality by 3 Gini points, that is the average increase recorded in the OECD over the past two decades, would drag down economic growth by 0.35 percentage point per year for 25 years: a cumulated loss in GDP at the end of the period of 8.5 per cent.

This belies the ideological blinkers of the Prime Minister's claims that Labor is not interested in promoting economic growth. We are interested in promoting economic growth; we just have a different view. We have a clear-eyed view of the problems confronting the Australian economy and the handbrake of increasing inequality on economic growth in Australia. The Prime Minister cannot see that in the modern international economy, if you want to do something about growth, you start by doing something about inequality—a better spread of wealth, putting the middle and working class in a better position to spend and increasing aggregate demand, something that will flow through to workers' wages. We know that inequality is not inevitable. While they are macro trends, policy interventions can do something about it. The problem is that the corporate tax cuts before the House pour fuel on the fire; they make things worse. The Treasurer, noted economic expert, told AM yesterday that his corporate tax cuts would 'help resolve inequality issues' like they're some kind of magical economic elixir. It's not medicine; it's fuel for the fires of growing inequality.

To understand why this is, let's look at how economic forecasters have responded to Donald Trump's tax cuts. CNBC's Fed survey asked US forecasters how US corporations will respond to the reduction in the US corporate rate. Just 12 per cent of respondents believed that it would be spent on increased wages, the position of the Prime Minister and the Treasurer. A little more, 23 per cent, thought that it would be spent on capex, investing in the capital of companies; 13 per cent thought it would be spent on debt recovery, ultimately increasing the profit take; and 36 per cent thought it would be spent on share buybacks and special dividends. These forecasters believe that the bulk of that tax cut will go to increasing returns on capital. I'll give you a tip: that won't make inequality any better. Overall, just eight per cent of the 40 respondents, who include economists, strategists and fund managers, say that workers would benefit the most from Donald Trump's tax cuts. Fifty-four per cent said that it would be shareholders and executives. That is the impact of these bills on inequality.

At the same time, we note that the government is increasing the Medicare levy for seven million Australian workers. The Prime Minister will increase taxes for everyone earning over $21,000 a year—of course, that won't be the case for millionaires, though; they lost their deficit reduction levy, meaning that they will get a tax cut of about $21,000 a year, but let's just park that. These measures mean that tax increases under this government will be worn by police, firemen, tradesmen and teachers, while there will be tax cuts for millionaires, multinational corporations and our banks.

One of the refrains that we've heard is that these measures are necessary because we need to follow Donald Trump's America. Because they have reduced their corporate tax cut, the competitiveness of the Australian economy demands that we follow suit. Let's look at our competitiveness as an investment destination. We know that company tax is far from a determinative factor in investment decisions, otherwise you wouldn't be seeing the volume of investment in Australia from jurisdictions with lower corporate tax rates than we have in Australia today. It would not make sense if it was a determinative factor that jurisdictions with lower corporate tax rates invested in Australia, with a higher corporate tax rate. We know that company tax is just one of a range of considerations that drive investment decisions. Corporates want to know whether they can make a return, and that depends on the location of resources needed to make a return, natural and people resources, the strength of institutions to protect returns, security of investment, the skills of the domestic population, macroeconomic conditions and stability of the policy and regulatory environment. You can imagine the kinds of policy interventions that the government might be considering, taking those elements into consideration, to attract more foreign investment to Australia. A competent government would be a good start. A government that wasn't constantly flip-flopping and backflipping, as is characteristic of the Turnbull government, would probably help. A stable energy policy that wasn't driven by the troglodytes on the coalition back bench would also make a contribution.

But, even if we take tax alone, let's look at how Australia compares with the US. The US Congressional Budget Office prepared analysis to inform debate in the United States in March 2017 titled International comparisons of corporate income tax rates. They noted that the corporate statutory tax rate is one of many features in the tax system that influence corporate behaviour but, importantly, noted:

Because of their broader scope, average and effective corporate tax rates are better indicators of a company's incentives to invest in a particular country than is the statutory corporate tax rate.

This report didn't just look at the nominal rate; it also looked at what was actually paid. That analysis, which is free for everyone to see, put Australia's rate in the lower half of the G20. The paper pointed out that, while the headline rate was 30 per cent in 2012, the average rate for Australia was 17 per cent and the effective rate was 10.4 per cent. Indeed, the report used Australia as an example of why the US needed to cut its corporate tax rate. Finally, this bill before the chamber is the wrong plan for budget repair in Australia.

The provisions in this bill represent a significant structural deterioration of the budget over the medium term. Remember the glory days of the Abbott opposition when they had a shadow minister for debt reduction? On the watch of the current Deputy Prime Minister and former member Andrew Robb—remember the debt and deficit disaster, the budget emergency and the debt truck?—the deficit has blown out and debt has crashed through the half-a-trillion-dollar tax mark. They like to say we need to cut corporate taxes because that's what the Keating government did. Well, the Keating government didn't do unfunded corporate tax rate cuts. They did the hard work of funding it. One of the more annoying features of being a Labor MP these days is being lectured about the legacy of the Hawke-Keating government by people who have no idea what that legacy is.

We should recall that when the Hawke-Keating government reduced corporate taxes they introduced a fringe benefits tax, they introduced a capital gains tax and they put an end to the bottom-of-the-harbour lurks and perks. They funded the corporate tax cut. In response to that, an editorial in The Australian in 1985 attacked Labor for class warfare and said the tax package which cut corporate taxes represented a bias against business. The Business Council of Australia labelled that government 'anti-business'. The more things change, the more they stay the same. Labor are committed to a taxation policy that doesn't do unfunded corporate tax cuts. We've looked at whether there are inefficiencies in the taxation system—negative gearing, super concessions and the taxation treatment of trusts—and we've acted responsibly on those fronts. We have a plan for the Australian economy, not an ideological blinker.

Josh Wilson (Fremantle, Australian Labor Party) Share this | Link to this | Hansard source

I'm glad to speak on this bill, the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017, and I oppose the tax cuts for big business. Labor oppose the tax cuts to big business because they are irresponsible. In doing that we are trying to save the government from itself. We're trying to save Australian households, especially low- and middle-income Australians, from bearing the burden of this revenue giveaway. That is what it is. I agree with everything the member for Gellibrand just said. The government is proposing to give away $65 billion. It's going to create a structural hole in the budget. It hasn't done anything to repair that. It's not part of some comprehensive set of tax measures that produces some sort of fiscal balance or some balance in terms of its effect across the broader economy—the real economy and its effect on households. That point was made on Q&A the other night by Heather Ridout in saying that this is really a crude tax giveaway. It does not fit into any kind of larger plan for the Australian economy.

These tax cuts will result in current and future revenue burdens falling elsewhere. That's been the case whenever these things have been done. The OECD has observed that, where corporate tax rates have been cut, consumption taxes, VATs and GSTs inevitably go up to make up for the hole that's created in taking away revenue that is rightly, fairly and equitably derived from big businesses. Those taxes—VATs, GSTs and consumption taxes—are regressive taxes, and they fall hardest on the poor; they fall hardest on those who have the least. I note that the Tax Justice Network has said in relation to corporate tax cuts, particularly for big business and multinationals, that:

Governments make up shortfalls [from corporation tax cuts] by levying higher taxes on other, less wealthy sections of society, or by cutting back on essential public services, so tax 'competition' boosts inequality and deprivation.

A number of Labor speakers have made that point.

If you look at the proposed tax cuts, if you were a person sitting at their kitchen table or driving their car or in their workplace and you were looking at the issue of giving away corporate tax cuts, particularly to big business and multinationals, you would be sensible to back up a step. You'd be sensible to ask: what exactly is the problem that a massive and unprecedented tax giveaway to big business is trying to address?

What is the burning need to take $65 billion of revenue, to create that kind of structural hole in the budget, to create that burden that will fall elsewhere in Australian society?

I think most people have a sense of the challenges we face. We know that workers' share of national income is at a record low. We have falling real wages. We have rising inequality. Just to give a sense of how bad inequality in Australia has become, the top one per cent of Australians in terms of wealth and assets now own more than the bottom 70 per cent altogether. There's no way you can look at that kind of outcome and say that this is a system that's working, that this is a system that is delivering outcomes as it was designed to or as would be fair. That kind of outcome is not the result of a fair system; it's not even the result of a meritocracy. It is a grossly distorted system in which one per cent of Australians can own more than the bottom 70 per cent put together. Yet this kind of measure will only exacerbate that.

So, we have rising inequality. We have record underemployment. And under this government—despite, as the member for Gellibrand pointed out, making their run for government on the basis of an apparent debt emergency—debt has more than doubled, to now more than $500 billion. What's more, there's evidence of significant tax avoidance, especially for large multinationals. If you take all those challenges together, how on earth would any reasonable person think that the solution would be to cut corporate taxes for the biggest and most profitable companies in Australia, including a significant number of foreign multinational companies? How on earth could you think that giving away $65 billion of precious revenue, which we need for essential services, at a time when the budget is already significantly in the red, and cutting penalty rates to low-income workers and increasing the tax for people under $87,000 could possibly be regarded as the way to address those challenges?

Any sensible person knows that when you forgo taxes it's the same from a budgetary position as spending money. Any time you give up revenue, you want to do so on the basis that there's a very sound reason for doing that. You're giving away public funds, and in this case you're creating a hole that will endure into the future. The government has said that they have good reason for doing that, and I think that's the kind of thing everyone who comes and participates in this debate ought to consider. What we already know about the $65 billion giveaway is that it will increase government debt. We know that when you give away $65 billion to big companies—multinationals—that is funding that cannot be used for health and education, for crisis housing and homelessness support services, or for the social safety welfare net.

That's the first thing. That's a given. But the government said, 'We've got to do this, because it's the only way we can stimulate economic growth, it's the only way we can create jobs and it's the only way we can get a higher investment flow into Australia.' There is no basis for any of those three arguments. The government hasn't put anything forward on that front. There is no independent economic analysis. There are no economic commentators who will back in those claims.

Are big businesses struggling under the existing tax burden? Is there any evidence that big businesses in Australia are at the point of collapse? There isn't. We're living at a time when large businesses are making record profits. There is no evidence of widespread business struggles or difficulties. There's in fact the reverse. There's evidence that large companies in particular are doing very well. They're not sharing that success. There's no flowthrough to wages. But they're certainly recording record profits. We know from the 2015 ATO data in relation to this question of whether business is labouring under some inordinate tax burden that one in three private companies paid no tax in that relevant tax year. One in four public corporate entities paid no tax, one in three private companies and one in four public companies paid no tax and fully half of the foreign companies operating in Australia, by some accounting method or other, had no taxable income.

We also know, as the member for Gellibrand and a number of other Labor people in this debate have pointed out, that companies in Australia couldn't possibly complain about the tax burden they face if they had regard for the tax burden that exists in comparable economies. The relevant comparator group is the G20. We are the 13th-largest economy in the world. We sit in that group of developed economies that make up the 20 largest economies. When the US Congressional Budget Office undertook its analysis, it showed that Australia is average or even below average in terms of tax burden. That judgement does not take account of the impact of our innovative dividend imputation arrangements, which are calculated to have the effect of removing taxable burden by about a third. So there's no case to be made that the Australian taxation position with respect to companies is unduly or comparatively burdensome. There's no evidence that companies are desperate for a tax cut. There's just nothing of that kind.

That obviously goes to the question about whether or not making this kind of tax giveaway is necessary or even assists in relation to investor flows. Again, there's no evidence of that. Companies invest in Australia for a whole range of reasons. In some cases, if you think about the resources that Australia holds, they invest here because we have those resources. Someone doesn't come here to look at an LNG play or to consider developing an iron ore resource because of the tax position. They come here because we are blessed to have a lot of natural riches in those ways. A more responsible government would be ensuring that the general economic framework in this country supports new kinds of investment in the future—investment in things like renewable energy. That would be a much more prudent way of spending scarce government funds than giving away $65 billion at a stroke.

There's no evidence that tax cuts, particularly tax cuts of this exorbitant magnitude, do anything much for growth. The government's own numbers indicate that the tax cuts would deliver about one per cent of growth over 20 years. When you break that down to the benefit for individual households, it's about 0.1 per cent for households. A 0.1 per cent increase in the position of households is about the same as what happens on a monthly basis in the economy as it is. These tax cuts will not deliver growth. It is a sad indictment of a government whose mantra was jobs and growth that the best they can do, the only thing they can do, is to give $65 billion away to big multinationals that are making record profits and doing very well, thank you. There's certainly no evidence that tax cuts lead to jobs, and since this proposition was put forward I haven't read a single thing about this. I've read countless articles and pieces of analysis that say the opposite. There is simply no evidence that tax cuts, in and of themselves, create jobs. Lots of things do create jobs. Investment in infrastructure creates jobs. Investment in education creates jobs. Investment in health services creates jobs. Those things are all demonstrably true. Giving away a huge tax cut to large businesses that are already performing quite well and are quite profitable does not flow through to jobs and does not flow through to wages.

The truth is that there is no rationale for $65 billion in tax cuts for big business. It can't be justified on the basis of delivering economic growth. It can't be justified on the basis of creating jobs. It's got nothing to do with investor flows. My old woodwork teacher used to say to me, 'Before you start any job, measure twice and cut once.' This government is going to create an enormous hole in the budget going into the future. Once you give money away it's very difficult and unlikely that you'll ever get it back. This government and previous coalition governments have form in this space. They cast a long shadow. The Howard government lived through very sunny economic times. It acted with extraordinary profligacy towards the end of its time. We are living with the structural impact of that profligacy even now.

This is a further act of profligacy. It probably goes one step further. This $65 billion giveaway will be a savage blow to the ability of this and future Australian governments to do their job, which is to look after the broad economic and social welfare of the Australian people. On that basis, it is grossly irresponsible. It creates a massive structural hole in future budgets. It will prevent us from supporting essential services, from investing in health and education, public infrastructure, in our precious environment, in the good working of the social safety net. It answers no demonstrated need whatsoever. It has no demonstrated benefits. The very, very marginal benefits that the Parliamentary Budget Office has found are pathetically minimal. It will shift the tax burden from companies to households as sure as night follows day. It will put the needs of future Australian governments to derive revenue to pay for essential services on households and take them from large companies, particularly multinational companies that are already profitable and already have countless ways of avoiding the tax they have to pay. I'm glad to oppose it.

Debate adjourned.