Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I thank Senator Macdonald for that question. It's a very good question. When we legislated the first three years of our business tax cuts in March 2017 to a threshold of $50 million—which is the threshold that came into effect in the 2018-19 financial year, and that takes us now, in terms of our Ten Year Enterprise Tax Plan, to 30 June 2019—it was always on the basis that we would seek to legislate the entire enterprise tax plan. Being able to make the case for lower, globally more competitive business tax rates for businesses with more than $50 million in turnover is hard enough. If we now lock in a $500 million cap we will never, ever revisit that. It'll be absolutely impossible to go to the Australian people and say, 'We want you to now support a lower, globally more competitive business tax rate just for businesses with a turnover of more than $500 million.' The practical effect of that is that we would be locking in, in a structural sense, on an ongoing basis, a five per cent higher tax rate on profits for businesses with a turnover of more than $500 million. So, as soon as you are a business that goes from $500 million to $500 million plus $1, you would end up getting hit with a five per cent tax increase on 100 per cent of your profits—from your first dollar in profit to, essentially, 100 per cent of your profits.

What that means is that we would be providing a perverse incentive to businesses around Australia who've been somewhat successful to downsize. Any business that is able to generate $500 million worth of turnover has been somewhat successful. They've proven that they've got the entrepreneurial flair, the ideas, the products, the services, the know-how, the workers, the team and the capacity to generate economic activity, generate jobs and pay wages. But, if we say to that business, 'If you have one additional dollar of turnover, we will hit you with a five per cent increase in tax on 100 per cent of your profits,' that is a massive disincentive to further growth. As Mr Shorten used to assertively argue, it provides a perverse incentive to downsize.

The reason we're so committed to lowering the corporate tax rate for all businesses, irrespective of their turnover—carving out the four big banks, but for all other businesses—is that we want to show that, down the track, they will have the benefit of a lower, globally more competitive business tax rate. They're making investment decisions now based on their expectations of future after-tax profitability. If you talk to fund managers around the world, they will tell you that what they consider when making investment decisions is the expected after-tax return on that investment.

Do you know what the biggest source of foreign direct investment into Australia is? The biggest source of foreign direct investment into Australia is the United States. And do you know what has happened in the United States? Their corporate tax rate, earlier this year, went from 35 per cent to 21 per cent. We compete with businesses in the United States for investment into Australia, and in the US, their home market, the corporate tax rate went from 35 per cent to 21 per cent. So how can we here in Australia—with a comparatively small population, a large continent, lots of opportunity, capital intensive industries and significant reliance on foreign capital in order to continue to generate stronger growth and create more opportunities for workers around Australia—say that we're going to tie the arms of our businesses behind their backs and we're going to put rocks into their backpacks to make it harder for them to compete with businesses overseas?

The impact of putting a cap in place that would likely never be able to be shifted would be that we would provide an incentive to bigger businesses to become smaller businesses, when what we should be wanting to do is provide an incentive to smaller businesses across Australia to become bigger businesses. If we say to a smaller business or one approaching the $500 million cap that if they are even that little bit more successful we're going to hit them with a five per cent additional corporate tax rate, the enthusiasm to pursue further growth opportunities will be hampered. And we shouldn't hamper that, because, in the end, who gets hurt when a business is less successful? The people who miss out on getting a job in that business.

The people in the US won't mind if we make it harder for businesses here to compete with businesses over there. We have to remember that the US has a big population and a big domestic capital market, comparatively speaking. The reason they were able to have a 35 per cent corporate tax rate for so long is that, the need for them to have a competitive business tax rate—compared to Australia; in a comparative sense—was actually less urgent. It is much more urgent for a country like Australia—an open trading economy, a globally focused but also globally exposed economy—to have a globally competitive business tax rate so that we can continue to attract capital investment into Australia from other parts of the word and continue to build our businesses here in Australia. People say, 'Big businesses is unpopular.' But, hang on: if big businesses employ more people, where do those people go to shop, to have their coffees, to go to restaurants? The flow-on effect goes throughout the economy.

I see Senator Brockman, from the great state of Western Australia, is here. We are a trading economy in many ways. We are part of a trading nation. We have got some big companies. FMG didn't exist in 2003; today it's a big company. BHP is a big company in Western Australia. They are exposed to changes in commodity prices which we don't influence. We don't have any control over them. We are price takers. When the iron ore price, which is 20 per cent of national export income and a significant proportion of the economic activity in Western Australia, goes from $180 a tonne down to $45 a tonne, forcing iron ore businesses and other businesses to seriously cut their costs in order to remain viable and competitive, what happens in the rest of the economy? It means less opportunity for small and medium-sized business. It means lower job security. It has an impact all the way through the economy. But that is something that is outside our control. Our tax rate is directly under our control. If we keep taxes in Australia high, it is a deliberate decision to make it harder for our businesses in Australia to compete with businesses in other parts of the word. It's a deliberate decision to make it harder for workers in Australia to get a job and pursue a career here in Australia, compared to workers in other parts of the world.

I see Senator Macdonald. Qantas was set up by three people in Longreach in Queensland. It was a small business that started with a mail run. Today they employ 30,000 people, and 3,000 small and medium-sized businesses supply goods and services to them. They operate in a fiercely competitive international industry. If Qantas has less opportunity to be viable, to be competitive, to be profitable and to be successful into the future, it has a direct impact on the job security of people working at Qantas. It has a direct impact on the job security of the many Australians working in small and medium-sized businesses supplying goods and services to Qantas. It has a direct impact on the job security of the many Australians working in cafes, restaurants and shopping centres around Australia, serving the people who work for Qantas and all of their suppliers. In Townsville, I believe there is a business that has secured the contract to paint the Qantas planes. Senator Macdonald is nodding. These are the sorts of things that a successful business can do.

If we here in Australia, as policymakers, make a deliberate decision to make it harder for our global champions—the businesses that have grown from employing three people to employing 30,000 people—and to put them at a competitive disadvantage in the global economy, it will hurt families around Australia, hurt our economy and cost jobs. If we genuinely want the best possible opportunity for Australians today and Australians in the future to get ahead, to get a job, to be able to build a career and to get wage increases, we've got to ensure that our policy settings facilitate business success, because nine out of 10 working Australians work for private sector businesses, and their future job opportunities, job security, career prospects and wage increases depend on the future viability, competitiveness, profitability and success of the businesses that employ them.

That is why I'm urging the Senate to get behind this very important reform. In an absolute sign of good faith and a demonstration of how important we believe this is, we have put forward these amendments to carve out the four big banks, because clearly, in the political debate, that was an issue that was making it harder for people to support otherwise good policy and otherwise important reform. So, given this concession by the government, we really would urge the Senate to reflect on the national interest here and to reflect on all of the things that Mr Shorten, Mr Bowen and Senator Wong have said in the past about how important it is for Australia to have a globally competitive business tax rate.

Senator Hinch is right. He was on the record for a long time. The reason I always heard him say that he wanted to put in the $500 million cap was that he wanted to exclude the big banks. Well, we want to exclude the big banks, but without hurting those businesses employing millions of Australians that are exposed to global competition. That is what we're putting to the Senate. Work with us. We have taken a step towards you—a significant step. Let us come together in the national interest. Let us come together in the interests of working families around Australia whose future job opportunities, job security and wage increases depend on the future success and profitability of businesses around Australia which employ them.