Katy Gallagher (ACT, Australian Labor Party) Share this | Hansard source

I rise to make a contribution to the debate on the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016. Let us be clear: this is an incredibly consequential piece of legislation that we have before us. That is because what we are considering in the chamber today is, by the government's own admission, the centrepiece of their entire economic agenda. So it is worth asking: what is the agenda the government is seeking to implement with this bill? Well, while it has been cynically and misleadingly marketed to the Australian people by the Prime Minister and Treasurer as a tax cut for small business, in reality all that this government has to offer by way of an economic agenda is an enormous unfunded tax cut for foreign multinationals and the big banks.

What a massive wasted opportunity this bill is for the government and, more importantly, for our country. That is because the opportunity cost of pursuing this so-called plan is that the Turnbull government is failing to actually address the very real economic challenges we must confront. It has been 10 months since the government proposed these tax cuts in the 2016 budget, yet they have only now just brought this legislation to the Senate for debate. This is typical for what passes for economic leadership from the Abbott-Turnbull government. They have presided over a total vacuum in economic leadership at the national level. They have embraced inertia over action and preferred slogans to substance. At a time when we as a nation are faced with economic challenges that demand our urgent attention, this government has been missing in action on all counts. Whether it is rising inequality, stagnant wage growth, worsening housing affordability, climate change, unemployment and underemployment, technological disruption and automation, the negative distortions in our tax system or the need to transition to a model of growth that is not driven by mining investment, there is simply no coherent plan or strategy from this government.

I think it pays to place some of the challenges we are facing into historical perspective. Australian workers are currently experiencing the lowest wage growth in 30 years. Our rates of home ownership have plummeted to a 60-year low and inequality is at a staggering 75-year high. Another way to appreciate the challenge we are facing is to acknowledge that in the past generation the top one per cent of income earners have doubled their share of income, while at the other end of the spectrum one in eight Australians now say they cannot afford dental care. Yet, rather than advocating an economic plan that seeks to address these clearly pressing issues, the Turnbull government has made a perverse choice: to prioritise multinationals over Australian families and, in the process, recklessly narrow the revenue base of our tax system. This government's idea of tackling debt and deficit is to blow a $50 billion hole in the budget for a purported benefit in the future that could be mistaken for a rounding error.

What does this mean in the real world for working and middle class Australians? Without sufficient revenue, we will be unable to provide services that communities right across Australia rely upon, nor will we be able to invest in our human and physical capital to ensure that most Australian of aspirations: a fair society with decent living standards for all. Make no mistake: in attempting to pass this bill, the Turnbull government is in essence proposing a $50 billion giveaway on the backs of ordinary taxpayers to big multinational businesses and their shareholders offshore. This is not only fiscally irresponsible on a grand scale; it is morally reprehensible as well. It is truly astonishing that a government whose members like to stand at the dispatch box of this parliament and lecture us on the intergenerational inequity of debt now seems blindly intent on adding $50 billion to it while ignoring the budget deficit. That is a deficit that the most recent MYEFO revealed to be $36.5 billion, delivered by a government that has managed to increase net government debt from $184 billion to $317 billion in less than four years.

How can the government seriously claim to be addressing the budget deficit and government debt when this is their signature economic proposal? As Labor's shadow Treasurer, Chris Bowen, has made clear, Labor will not be party to this discredited Laffer curve, Reaganomics-style approach to deficit reduction. Make no mistake: that is the course the government, through this bill, seeks to embark us upon, based on magic pudding economics—that you can endlessly cut tax rates and still miraculously return to surplus. This approach is now widely acknowledged by academics and leading economic institutions as widening inequality and dampening precisely the kind of sustainable and inclusive economic growth needed to generate new high-skill, high-wage jobs that can deliver improved living standards.

If this bill were to pass, it would fail dismally in its stated aim to deliver economic growth of any note, for reasons I will turn to a greater depth later. It would undoubtedly damage the fiscal position of the Commonwealth and jeopardise our AAA credit rating. Most critically—and the issue that motivates us on this side of the chamber—it will rob working and middle class Australians of desperately needed investment in skills, education, health care and infrastructure. These are the real drivers of long-term and inclusive economic growth. It is a sad indictment of this government that, more than three years since it was first elected, and on the eve of its fourth budget, it still has no credible plan to deliver economic prosperity for the Australian people.

Looking back over its more than three years in office, this coalition government's economic record can regrettably be characterised by its misguided austerity for the most vulnerable in our community while sparing the big end of town. Boiling it down to its essential logic, or rather illogic, according to this government, providing a vulnerable young jobseeker with Newstart in their hour of need is unaffordable. It is symptomatic of unsustainable largesse that they described as a budget crisis. Yet, on the other hand, handing over billions upon billions of dollars in tax cuts to the largest companies operating in the country is not only affordable but their most pressing economic priority.

Regrettably, that is what happens when you have a Prime Minister who is beholden to the hard right wing of his own party, and there appears to be little hope that a real economic reform agenda will spring forth from this government during this term of parliament. It is far more likely it will continue to be sidetracked, with the Prime Minister pandering to the whims of a mutinous backbench that's laughably out of touch with mainstream concerns. We saw examples of that just this week—a Prime Minister and a government focused on watering down hate speech laws, but with no time to defend the take-home pay of some of the lowest-paid workers in Australia who rely on penalty rates.

This bill was the government's economic rationale for re­election. That was confirmed last year by the finance minister in Senate estimates when he described it as the centrepiece of their economic agenda. But it is lazy policy, it's unimaginative, and ultimately exposes the government for its lack of vision.

Turning to the specifics of the proposal, this bill will be ineffective when measured against what the government claims it will achieve—jobs and growth.    In fact, the key beneficiary, should this bill pass, would not be the Australian community but rather foreign shareholders of firms that operate in Australia.

It is worth taking some time to canvass the contemporary evidence on the connection between corporate taxes and economic growth. Despite being the perennial demand of certain industry groups and right-wing think tanks, is there really evidence to support the notion that cutting the corporate tax rate is the economic panacea they claim it to be?

Some of the most recent analysis from a very broad range of institutions, which include the Treasury, the Grattan Institute, the Australia Institute, the International Monetary Fund and the World Bank have all seriously called into question the efficacy of corporate tax cuts when not coupled with other economic reform as an instrument to drive growth. Some of those same groups have raised further and compelling doubts about their usefulness, especially when considered in the Australian context, taking into account our current debt profile and the particular features of our tax system. In particular, they note that, given our unique system of dividend imputation and the fact we are competing with low- and no-tax jurisdictions, any supposed benefit tax cuts would deliver would be negligible at best.

Treasury's own modelling exposes the underwhelming case for the government's plan. In its analysis of the most recent budget entitled 'Economy­wide modelling for the 2016-17 Budget,' the Treasury has estimated the impact of the government's corporate tax giveaway on Australia's projected economic growth. The key take-out from this modelling is that over 20 years the proposed cut in company tax from 30 per cent to 25 percent for all businesses would increase GDP by only 1.2 per cent.

I really think that deserves to be repeated: over 20 years—that is, six terms of the federal parliament—Treasury expects this bill will only boost our GDP by 1.2 per cent. And that is the headline growth rate. When you drill down into that figure, it reveals just how lacklustre that result is when you consider what it means for Australian households. As my colleague Andrew Leigh succinctly put it: 'Treasury's most likely scenario is that a company tax cut delivers an extra month of household income growth—in the 2030s.'

And we should not be surprised.

Recent analyses of Australia's growth performance with comparable nations that have lower corporate tax rates find little evidence to buttress the claims that economic growth is inevitably higher in countries that impose lower rates of corporate tax. And, fundamentally, this government's plan for dishing out tax cuts for big business rests on the notion that our current    corporate tax rate—currently 30 per cent for the largest businesses—is uncompetitive and impairs economic performance.

But even a cursory analysis proves we are very much in line with other developed countries, especially as Michael Pascoe notes in his excellent piece in the Fairfax papers entitled 'An inconvenient truth gets in the way of the company tax cut chants', when we weight that tax rate for the extra security, stability and opportunities Australia offers investors.

The largest economy in the world, the United States, has a headline corporate tax rate of about 35 per cent. The economic powerhouse of Europe, Germany, has a rate of 29.65 per cent. Looking to our region and one of our largest trading partners, Japan, the fourth largest economy in the world, has a tax rate of 30.86 per cent. In fact, if you look at the world's 10 largest economies, the corporate tax rate currently averages around 29 per cent. It is simply a fallacy to say that having a tax rate above 25 per cent prohibits strong economic performance. But headline tax rates are just one element and looking at them in isolation is folly. I have no doubt, however, that you will hear plenty of facile repetition of headline tax rates without proper context from those opposite in their contributions to this debate.

That missing context is the impact of features of our tax system such as dividend imputation. The Grattan Institute's submission to the Senate Economics Committee's inquiry into this bill provides further compelling evidence that dramatically diminishes the case for big company tax cuts. Grattan's submission states:

Australia's unusual dividend imputation system means that domestic investors are largely unaffected by the company tax rate since any profits paid to them are taxed at their personal income tax rate.

Yet because foreign investors, by contrast, do not benefit from dividend imputation, a cut to the company tax rate provides bigger benefits to them.

For those foreign firms who have already made long-term investments in Australia, a reduction in the tax rate would simply be a windfall. Yet this marginal reduction in headline rate does not meaningfully incentivise new investment.

Treasury also acknowledges the substantial costs of the measure in the short term could see company tax cuts drag on national incomes for the next ten years. Even the most sympathetic analysis from the Treasury shows that any net benefit to Australians' incomes will be much smaller once profits flowing out of Australia are taken into account.

As the Grattan Institute also pointed out in its submission, it is a mistake to assume that any increase in economic activity will necessarily go toward making Australians better off. As the benefits of this bill will pass disproportionately to nonresidents, using the GDP as the principal measure of its success is flawed. Gross national income is a better yardstick to use when assessing this bill as it more accurately reflects whether the incomes of everyday Australians might rise. Treasury estimates that a reduction in the company tax rate to 25 per cent would only increase Australia's GNI by 0.6 per cent over 20 years.

The government's claim that these tax cuts will deliver jobs and wages growth simply does not stack up to real-world scrutiny. Let's be clear: a race to the bottom on corporate taxes would be futile for Australia to engage in. The OECD has recognised that profit shifting by large multinational companies to tax havens is widespread and has sought to combat it through the base erosion and profit shifting policy. As noted by the ACTU in its submission to the Senate inquiry into this bill, this is an acknowledgement of the fact that in many cases Australia is already competing against countries with low or negligible company tax rates. Any relatively minor reduction in our corporate tax will struggle to attract significant additional investment, when you consider we are competing against cynically designed tax havens that will always be more attractive.

Put simply, this bill will not meaningfully grow the economy. It will not deliver meaningful wage growth; it will not improve our capacity to fund services, nor will it genuinely improve our competitiveness internationally. It simply does not stack up as an economic plan. It is just as important to consider the economic benefits of large cuts to the company tax rate against their budgetary and social costs, and that is what Labor has done. We recognise that the countries around the world that have a record of strong and inclusive economic growth do share something in common, and it is not a rock-bottom tax rate. It is that they build the necessary infrastructure to allow their people and firms to be more productive and compete in the global marketplace. They invest in research and development, which lead to innovative new products and businesses. They understand the value of funding an education system that will provide world-class skills through higher education and vocational training. In our current budgetary circumstance, this bill would severely curtail our ability to do all of those things. This tax cut is something that we simply cannot afford.

Labor is committed to a budget and a taxation system that link effort and reward in a fair way—especially for those who are trying to make a go for themselves in small businesses—while also taking responsible decisions that go to the sustainability of our public finances, so that we can make targeted investments that promote inclusive growth. That is what we took to the last election. We took measured and sensible reforms to negative gearing and capital gains tax that would improve the budget bottom line and help combat intergenerational inequity. We coupled a reduction in company taxation, which supports genuine small businesses, with responsible commitments to fund investments in health, infrastructure, education and research.

A Labor amendment to the bill    has been circulated in my name to give effect to our election commitments. Our amendments match our values. They defend our public finances and would deliver targeted tax relief to genuinely small businesses. They would do so by reducing the company tax rate to 27.5 per cent for businesses with a turnover of less than $2 million, the threshold that remains consistent with the ATO definition of a small business; increasing the unincorporated small business tax discount from five per cent to eight per cent for businesses with a turnover of less than $2 million; and by not proceeding with the increase to the small business entity threshold. Our considered amendments would help 96 per cent of all Australian small businesses—that is, defined as having less than a $2 million turnover. Costed by the PBO, they would save $4.4 billion over the forward estimates and $50 billion over the medium term compared to the government's reckless policy. Under Labor's policy around 811,000 companies and 2.19 million unincorporated businesses would benefit. That is more than three million businesses in total.

In conclusion, I simply ask that the government apply its previously stated rationale for abandoning tax reform in the last term. It may seem like an awfully long time ago, especially for the Prime Minister, but it is worth casting our minds back to those heady days of the early Turnbull government. At that time, and after many public thought bubbles on the subject, the Turnbull government decided to abandon the GST increase it had been prosecuting, stating on the public record that the modelling showed little to any economic benefit. Well, this legislation fails against the very same standard. We need tax and expenditure reform that is aimed at boosting income growth and increased worker participation, coupled with stronger investments in our educational, environmental and physical capital. This was the clarion call of the Henry Tax Review, because, as it noted, this balanced approach is what is needed to ensure a future that is fiscally and environmentally sustainable while honouring the commitment to Australian values of fairness and support for those who are disadvantaged. That is Labor's focus, and it should be the government's focus too. This bill does none of those things, and in its current form it is not worthy of the support of the parliament.