James Paterson (Victoria, Liberal Party) Share this | Hansard source

Thank you for your advice. I'll take your advice. It is a guide that we can normally reply upon and that is normally a very good guide to what happens in the chamber, but this morning, perhaps for some other reason, senators who were scheduled to speak in the normal order have decided not to. As it happens, I was just sitting at my desk in my office writing the speech on company taxes that I was due to deliver here, but, fortunately for me, this is an issue that we have all canvassed very widely in this chamber over the last few months, so I'm sure I'll be able to make a contribution without having a speech here in front of me.

I'm really pleased to have the opportunity to again make the case in this chamber for why Australia's company tax rate must be cut, why it must be reduced. There are many compelling reasons for this, which we will hear throughout this debate, but I want to take this opportunity to address some of the arguments that have been made so far in this debate that I find less compelling. One of them was made earlier in the chamber by Senator Whish-Wilson. He concluded his contribution to this debate by saying that what was lacking in this debate and what was lacking on the part of the government was courage, and if only the government had more courage it would have taken a different approach to company taxes: instead of advocating for a reduction in company tax rates—as the government is—the government would seek to find more revenue from companies, to raise higher tax revenue from companies in this country. I would respond to Senator Whish-Wilson, through you, Chair, by noting that there is nothing courageous at all, politically or otherwise, in bashing big business and saying you're going to take more revenue from them. In fact, it's the least courageous thing you can do in Australian politics, it's the easiest thing you can do in Australian politics, because what you are doing is appealing to the base political instincts and ignorance of some people in the community, and some people who have deliberately sought to whip up ignorance in the community, by portraying big business as somehow evil, as somehow noncontributors to our society and as somehow evading their obligations to pay a fair amount of tax in this country. It's very popular and very easy to make this argument, and that is what the Greens do. I think it lacks political courage, in fact, to make these arguments. So, I don't share Senator Whish-Wilson's view that the courageous thing to do would be to raise more revenue.

The truth is that Senator Whish-Wilson and the Liberal Party and I just bring different philosophical approaches to this issue. The Greens are in favour of big government. They think government knows best and they think that more money here in Canberra would be a good thing and that less money in the pockets of Australians, including Australian businesses, would be a good thing. That is fair enough. We have different philosophical world views. They take their approach and we take ours, but let's not pretend that this is a question, somehow, of courage.

It's almost a year ago that the Senate passed the first part of the government's Ten Year Enterprise Tax Plan. I want to congratulate and thank crossbench senators, who, at that time, did the right thing by supporting tax cuts for small businesses with up to $50 million in revenue. But now the crossbench has a different task, and that is to help the government finish the job—to legislate the rest of the enterprise tax plan. The case for finishing the job of the enterprise tax plan and passing the rest of the tax cuts is even stronger now than it was 12 months ago. All of the same arguments made then about stimulating increased investment and the flow-on benefits that would accrue to employment and wages, of course, remain exactly the same.

Today, there are two significant additional arguments that I hope crossbench senators, in particular, carefully consider. I want to thank them for so far engaging constructively with the government on these issues. In my view, it's to the great credit of senators Leyonhjelm, Anning and Bernardi that they've already agreed to support the government's full package. It's also a credit to the One Nation senators, as well as Senator Hinch and our new colleague from South Australia, Senator Storer, that they remain open-minded and that they are willing to negotiate. But, coming back to these two new pieces of evidence that we have now that we didn't have 12 months ago, I wrote an article for the Financial Review earlier this month remarking on one of these, which is that if the Senate stops now, if the parliament stops now, and leaves in place only the tax cuts legislated for small business, rather than finishing the job and legislating the rest of the tax cuts for all other businesses, then what we will be perhaps inadvertently doing is leaving in place an inefficient and distorting two-tiered company tax system. It will put in place a series of perverse incentives and it will vastly limit the benefits of the tax cut passage.

I understand the political dynamic here. It is much easier to be seen to be supporting tax cuts for small business. After all, who hates small business? Not even the Greens, I believe, hate small business. A different tax rate for larger businesses would effectively create a discriminatory company tax system that will punish businesses for their success. It's not what we should be doing; we should instead be encouraging businesses to grow. It is a very good thing when a small business becomes a large business. A two-tiered company tax system will do the opposite. It will hit companies with a five per cent tax increase as soon as they pass a turnover of $50 million, regardless of how profitable they may be. It will discourage innovation and create a perverse incentive for companies on the margin to limit their growth or to artificially structure their affairs to avoid crossing this threshold and paying more tax. It will inevitably impact business investment, economic growth and job creation. A two-tiered company tax system will seriously dampen the benefits that we could otherwise count on from cutting Australia's company tax rates. The truth is that the biggest bang for buck in economic terms will come from lowering taxes on our largest businesses.

Saul Eslake, an economist, has noted that the greatest growth in private sector employment in recent years has in fact come from big companies. If we want to see more of some of the record 403,000 jobs created in the last 12 months, it is not going to come by penalising big business. I doubt that any of those 400,000 people, many of whom got jobs in large businesses in the last year, want their employer to be penalised for their success.

ABS surveys on innovation also show that large businesses are the most likely to adopt new and innovative practices. Despite all of the propaganda that you hear about corporate tax avoidance, the reality is that it is big business that pays the overwhelming share of company tax in this country. That means that it's big business who is most likely to respond to the incentive provided by a reduction in the company tax rate.

These are the facts: according to the latest figures from the Australian Taxation Office, Australia's 2,475 biggest companies—that is, the top 0.2 per cent of companies—pay almost 64 per cent of all company tax in Australia. Sixty-four per cent of company tax in Australia is paid by the top tiny proportion of Australia's largest businesses. They are paying their fair share.

The Labor Party has also been running an inherently contradictory argument here. They say that big business pays no tax, or avoids paying the right rate of tax, and therefore we shouldn't cut their rate of tax. But, if a business doesn't pay any tax, then how would it benefit from a reduction in the rate of tax? If they pay zero dollars tax at 30 per cent because they make no net profit, then they will still pay zero dollars tax when that rate is reduced to 25 per cent.

It's the companies who already pay billions of tax that will benefit from a lower tax rate and will respond to a lower tax rate with increased investment. The international capital flows that a lower corporate tax rate is designed to attract overwhelmingly go to big business. If we want to attract more of that investment, we need to ensure that the return on that investment is competitive. It won't be if we continue to fall behind our competitors by having a higher corporate tax rate. One dollar of profit in a jurisdiction with a 25 per cent corporate tax rate is more attractive for an investor than $1 of profit in a jurisdiction with a 30 per cent tax rate.

Economists disagree about the exact share of where the company tax burden falls. Is it on shareholders through lower returns? Is it on employees through lower wages? Or is it on customers through higher prices? They disagree about the proportion of the burden that falls on those three groups but they all agree that it's a shared burden. All of those three groups bear the burden of company taxes and it's a burden which is ultimately borne by people. Ultimately, the cost of company taxes is paid by individuals. It doesn't matter whether they are customers, whether they are employees or whether they are shareholders, they all ultimately pay company taxes. And I think the shareholders, employees and customers of large businesses are no less deserving of being relieved of that burden than small businesses. We all interact with large businesses every single day. Ironically, it was perhaps Leader of the Opposition Bill Shorten who made the most cogent argument against a two-tiered tax system. When he was Assistant Treasurer in 2011, he said:

… lowering the corporate rate for smaller businesses only (as the Greens propose) creates an artificial incentive for Australian businesses to downsize.

In worse case scenarios some businesses might actually lay people off to get smaller—and the size based different tax treatment would create a glass ceiling on business workforce growth.

Instead we want a level playing field regardless of the size of the company.