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

Senator Whish-Wilson objects, but I encourage him to take up his objection with the Leader of the Opposition, Bill Shorten, because I'm only quoting his words. In his view, a differential tax rate between large and small businesses could lead to businesses laying off workers, and I don't think that's what we want to see. I think Bill Shorten was right in 2011 when he said we want to see 'a level playing field regardless of the size of the company'.

Leaving in place a differential rate of company tax also runs the risk that the company tax system will become even more progressive over time. I'm sure that's in fact exactly what the Greens would propose. We could see in this country more thresholds and higher rates imposed on larger businesses to resemble the personal income tax system. This would even further compound the inefficiencies that we already may see from this differential rate. And it is not hard, sadly, to foresee a future government succumbing to this economic populism, but, the truth is, we would all be poorer for it.

Clearly, there is only one way to fix this dilemma. Unless the Senate crossbench and those opposite propose to vote for increasing taxes on small business—and one would hope no-one in their right mind would propose doing that—then the alternative, if we want to see a 'level playing field', if we want to see a consistent tax system, is to help the government finish what it started and pass the rest of the company tax cuts.

I mentioned at the beginning of my speech that there were two new pieces of information we have today that we did not have 12 months ago. The second new piece of information that we have today is of course the success in the United States of President Trump's sweeping tax reforms which passed the US Congress in December. They lowered the US corporate tax rate from 35 per cent to 21 per cent, with a range of other cuts to US taxes to make the system more competitive. In previous debates, I and other senators have talked about the remarkable investments that these changes have encouraged. I have read out the names of dozens and dozens and dozens of companies who have increased the wages of their employees, who have announced new investments in their domestic businesses or who will be delivering higher returns to their shareholders as a result of the passage of the Trump tax cuts. I won't do that again today because we already all know about the positive impact the tax cuts have had on the US economy. I should point out that that's an economy which already had a lower unemployment rate than Australia and a stock market at near record highs—that is before the effects of these tax cuts.

What I do want to talk about is, in fact, the negative impact that the Trump tax cuts could have on the Australian economy. It sounds strange that another country reducing its taxes could in some way harm Australia, but the truth is that it will if we fail to respond. Australia has relied on foreign investment since the First Fleet, and we remain dependent on it today. It has massively enriched our country for over 200 years and, if we continue to attract it, it will continue to do so. Australia would be unimaginable without the foreign investment that we have enjoyed in that time. But there is not a limitless amount of international capital available for that foreign investment here in Australia. It's scarce. There is no guarantee that that investment will come here to Australia. If the returns are better in other countries, that is where the investment will go. We can't force people to come and invest here in Australia.

America is not just a competitor nation in the fight for scarce international capital; it is our No. 1 source of foreign investment. In 2016, Americans invested $860 million in Australia, or 27 per cent of our total foreign investment. But in 2016, when an American investor was contemplating investing either at home in the US or abroad in Australia, they faced a comparative tax rate of 35 per cent in the US and 30 per cent in Australia, so it made quite good sense for an American investor, contemplating investment between those two countries—assuming that the investment was the same—to make that investment in Australia. That investor was going to get a better return on investment only due to the fact that the Australian company tax rate was five per cent lower at that time than the United States rate. But the same investor making that same decision today faces a very different playing field. That investor is contemplating a 21 per cent corporate tax rate at home in the United States or a 30 per cent tax rate here in Australia. What would you do if you were that investor, particularly if you wanted to invest in a large business in Australia, which still faces a 30 per cent tax rate? Would you invest at home—where it's probably, to be clear, going to be more straightforward, simple and easy to do and has a lower corporate tax rate—or would you invest overseas in Australia, where you're going to face a higher tax rate? If the investments were comparable, of course you would invest at home. It's simpler, it's easier and you get a better return on investment.

The only way that you would continue to invest in Australia with our higher corporate tax rate is if the returns in Australia were so much better that they were enough to compensate for that much higher corporate tax rate. I hope that's the case. I hope the returns in Australia are always so generous and so strong that investors choose to disregard our higher corporate tax rate and invest here anyway, or perhaps sentiment will rule the day and they really like our weather or our cuisine and they choose to invest here. But I think all of us can acknowledge that the truth is that that won't continue to happen. We will have investment returns comparable to any other nation, and if we have a tax rate higher than most other nations then that investment will start up to dry up, including from the United States, our largest source of foreign investment.

As we know, the United States is not the only country in the world cutting its corporate tax rate. Our second biggest foreign investor is the United Kingdom. In 2016, they invested $515 million, or 16 per cent of our total foreign investment. Today, the UK corporate tax rate is 19 per cent. They have been cutting their corporate tax rate for a decade. Back in 2010, it was comparable to Australia's at 28 per cent. Incidentally, in their corporate tax reform in the UK, they didn't just reduce the rates of tax paid for all their businesses; they abolished the previous differential rate that they used to have for small business because they recognise, as Bill Shorten does, that it's inefficient to have two different rates of tax depending on the size of the business. So, in lowering their corporate tax rate overall, they abolished their different tax rate for small businesses. Now they just have one tax rate of 19 per cent, significantly lower than Australia's, and it's forecast to continue to fall.

Nations across the world are following suit. Corporate tax rates are continuing to come down. According to the Tax Foundation in Washington, DC, in 2017 the average global corporate tax rate was just 22.96 per cent, a full seven percentage points lower than in Australia. We are now in the handful of top corporate taxing nations in the OECD, and to be honest—let's be clear—the OECD is really a club of high-taxing nations, so it is a particularly bad statistic to be a high-taxing nation within a club of high-taxing nations. The truth is that Australia is increasingly out of step with the rest of the world. Our corporate tax rate is higher than those of the rest of the world now, and it will get higher still if we refuse to act. It would be inefficient for us to leave in place a rate differential between our small businesses and our large businesses. We are falling behind the rest of the world. If we don't act we will pay for this. If we don't act we will all regret this week, when the Senate decided not to support this tax package.

I hope that the crossbench continue their productive conversations with the government. I hope they continue to show an open mind about this plan. I can even hope, perhaps, for a miracle and that those opposite will come to their senses and revert to the view they used to hold only a few years ago, which I suspect the Leader of the Opposition, Mr Shorten, still holds deep down but perhaps doesn't have the confidence to argue for within his caucus. Perhaps a miracle will happen and they will return to the view they all held back in 2011.