Tax Policy

A company tax cut will fuel growth, employment

Daily Telegraph 30 March 2017

Australia’s Senate can stop us hurtling towards a poorer ­future as it votes on legislation to cut our company tax rate from 30 to 25 per cent by 2025.

There are three reasons the cut must go to all companies in full.

First, “big business” is a myth and all companies should get a tax cut as companies are owned by people. It is not a “give way to big banks and foreigners” as the Opposition Leader says.

In keeping with our egalitarian traditions, big business in Australia is owned by mums and dads.

For example, the Commonwealth Bank has more than 800,000 retail shareholders and almost every working Australian owns CBA shares through their super fund. Eighty per cent of CBA’s shares are held by Australians, of which the majority is mums and dads (54 per cent).

The $3.4 billion in dividends paid by CBA goes to super funds and the average super fund has 30 per cent of its assets invested in Aussie shares.

Business is also a massive taxpayer. Last year, Australian companies paid $65 billion in company tax alone: the second highest in the developed world after Norway. Companies pay more than their fair share — so much so that we are now losing opportunities offshore.

Second, cutting company tax has the power to create more and better jobs and better lives in a competitive world. The economics are clear: KPMG modelling shows cutting company tax to the Asian average of 22 per cent would cause investment to spike by 4 per cent with more jobs and higher wages. Company tax cuts help people since more investment delivers more jobs and higher wages.

Third, our history shows the way. For most of last century, Australia was a country with barriers to ­migration and offshore investment plus high taxes and high tariffs. These policies did not work. By the early 1980s, Australia was going broke.

When Bob Hawke and Paul Keating cut company tax from 49 to 33 per cent and cut tariffs, they ushered in almost 26 years of growth. If we are not competitive, we are dead. 

Australians are smart. An Ipsos poll this week showed 44 per cent of us back company tax cuts. This is ­despite an appalling campaign of lies and misinformation from GetUp! and the union movement, which wants to keep people poor.

Australia is not an island when it comes to investment and jobs.

Jobs will be created in the best business ­environment which is why Labor and the unions in the 1980s backed cutting taxes.

By supporting company tax cuts, the Senate can show Australia is open for business.

There is no time for populism in Australia

Australian Financial Review March 29 2017 (with Tony Shepherd)

Australia's history is replete with good and bad examples of how to run public policy.

We have tried protectionism, we have tried state ownership, we have tried high taxes and centrally set wages and conditions.

Today we must choose again between good and bad.

The Senate is now a significant arbiter of policy. It is increasingly unpredictable and at times is driven by short-term populism. But complacency is our greatest enemy. The consequences of delay on the economy and the average Australian will be serious.

Indeed, the National Commission of Audit talked about a window of opportunity for Australia to get our budget back on track before the ageing population hits. That window is rapidly closing as the last of the baby boomers retire.

The review which Menzies Research Centre is conducting is designed to provide a framework for making these decisions and by community engagement give the Senate courage to make the right decisions.

Three of the big challenges we face reveal clear forks in the policy road: taxation, the operation of government, foreign investment and free trade.

We have a simple choice between maintaining competitive tax settings to boost investment in a highly competitive global environment, or navel gaze with our own self-selected rate. Capital is extremely mobile. During much of the period between 2011 and 2016, we lost 11 spots to rank just 28 in the World Economic Forum's assessment of our macroeconomic environment – with tax driving this collapse in rating.

The rate of tax is a major determinant in global investment decisions. Investment determines the rate of growth of Australia and its productivity. This in turn impacts the growth and quality of new jobs.

If the Senate fails to adopt the proposed company tax cuts, it will leave Australia as one of the only major OECD nations to have failed to cut company taxes in a period of intense global tax competition.

All the credible modelling of company tax reductions shows the big winners are workers, small to large business and their Australian shareholders who include millions of mums and dads directly or through their superannuation funds.

The operation of government in Australia is another big challenge. Australia is now 53rd in the global ratings of wastefulness of government spending.

State governments are responsible for 40 per cent of spending in Australia but raise around half of  their revenue, mainly through regressive and anti-employment taxes like Stamp Duty and Payroll Tax. The balance comes through Commonwealth grants and GST, which is effectively a State Tax.

The choice in federalism is to continue expanding the duplication of the Commonwealth, or try to establish a better match between revenue and expenditure. The latter will drive accountability whilst recognising the sovereignty and role of the states.

Throwing the federation into the too-hard basket guarantees we will never keep faith with our citizens. Until people are clear on who to fire when the school ratings are declining or the hospital waiting lines are too long, we will continue falling in the global rankings.

Crazy domestic forces are trying to surf the rising protectionist sentiment around the world. The choice here is between keeping foreign investment flowing or raising the drawbridge. Senator Hanson said in January: "[foreign investors] are buying [assets] to drive up profits at the expense of the people…" This is fake news. This logic sets aside the history of Australia which has relied upon foreign investment since 1788.

We have never had enough capital to develop this country and we continue to be poor savers. That's why we have $3 trillion of foreign investment stocks in Australia and a savings gap which has not moved over the past 35 years despite the introduction of compulsory superannuation in 1992.

Just to maintain our current standard of living, we will need to attract more foreign investment as our tax base and savings base shrinks with the ageing population. We have a small population and we are a high-cost country. We need to compete in world markets through export to survive.

As we stand at the crossroads, we must be anti-populist on all fronts, but unlike our protagonists we need to be armed with evidence.

The review will provide better options and evidence on tax, government accountability, foreign investment and trade. It will be informed by the community – and deal with their concerns.

 

COMPANY TAX CUT IS THE NEW BANANA REPUBLIC TEST

Australia will be the winner if the mooted company tax cut is quickly passed by Parliament.

There are challenging arguments which must be won for the benefits to flow.

If essential reforms can be defeated by populist arguments, Australia would already be a Banana Republic as Paul Keating feared in the 1980s.

The argument the Coalition and Labor need to win against the Greens, who oppose change, is simply there will be fewer Australian jobs without a company tax cut. In other words, workers are the biggest beneficiary of a company tax cut.

NO ROOM FOR COMPLACENCY

NO ROOM FOR COMPLACENCY

The Australian 18 January 2016

“Tax reform” has become an opaque, insider term.

Few people know what it means or that change could ­create a faster growing economy, more investment, more jobs, higher wages, and improved public accountability.

As Reserve Bank Governor Glenn Stevens said last year: ­“Reform is a word that excites the intellectual elites and interest groups, but doesn’t do much for the general public. People are more likely to grasp a conversation about economic growth. Growth in jobs, in incomes, in standard of living, wealth and prosperity.”

THINK GLOBAL ON TAX REFORM

THINK GLOBAL ON TAX REFORM

Think global, not local on tax reform

Australian Financial Review - 10 November 2015

A global perspective is required to fix Australia's tax system. As a trading nation, this should be obvious.

But we risk allowing introspection and internal bickering to compromise one of the core objectives of tax reform – to improve Australia's competitiveness in the Asian century. To lift our competitiveness, which is code for more investment and employment, reducing the company tax rate is an essential component of any tax reform package.

WE NEED BIGGER, BROADER GST

We need bigger, broader GST

The Australian 13 July 2015

The tax system has three major problems – it is unsustainable, inefficient and it reduces our global competitiveness.

Australia is already a relatively high taxing country so raising taxes is not the answer. Rather, we need to fix the tax mix.

Of the OECD nations, Australia ranks second in its reliance on company and personal taxes. We also have one of the lowest and narrowest consumption taxes. This mix of taxes will be unsustainable as our population continues to age.