IT STRIKES me that many people are now going out of their way to oppose modest company tax cuts simply because they’re caught up in the anti-business firestorm raging across the nation.
Businesses are not perfect. Nor are they villains. We cannot dispute the contribution small, medium and large businesses make to Australia. They create and support the jobs of 10 million Australians, help keep rural and regional towns afloat, innovate, and pay more than $70 billion in company taxes a year to help fund the services we all want and need.
But to score a few political points, our critics are willing to put a handbrake on growing the entire economy. They’re willing to stall job creation, and limit opportunities and the prospect of higher wages growth.
They’re willing to trade away a permanent boost to all Australians worth almost $20 billion extra a year in gross domestic product, and an additional $4 billion in annual tax revenue, simply because they want to punish business.
We now live in a country where populism routinely drowns out meaningful reform. We’re talking about a $65 billion cost for a $180 billion net gain over a decade.
The Business Council is supporting the plan to reduce Australia’s company tax rate for all businesses from 30 per cent to 25 per cent, staggered over a decade. We’re doing this because it is good policy, and because it is the only proposal on the table that can give the economy the shot in the arm it needs.
This modest reform doesn’t produce some windfall gain; instead, it signals Australia intends to remain internationally competitive.
Critics say this is merely joining a “global race to the bottom’’ on tax cuts. But this type of thinking threatens to leave Australia stranded.
Australia’s company tax rate of 30 per cent has been frozen for 17 years, trailing the US now at 21 per cent, the United Kingdom heading towards 17 per cent, and France’s plan for 25 per cent. The average in Asia is 21 per cent.
With more than 200,000 staff, Wesfarmers is the nation’s largest private sector employer. Chief executive Rob Scott says he’s in favour of a company tax cut because it’s about the employees. It’s not fair, he says, for Wesfarmers staff to work for a company that is disadvantaged when it comes to tax, relative to Australia’s international competitors.
The clear advice from the independent Parliamentary Budget Office is the company tax cuts are fully factored into the budget, including the forecast to return to surplus in 2020-21.
The tax collected doesn’t decline under the plan, it actually increases. Treasury estimates company tax receipts will rise from $71 billion last year to $97 billion in 2020-21.
We all agree on the need for Australia to attract investment, but with all else being equal, it’s smart business to invest in a country with a lower company tax rate.
It’s true that just cutting the company tax rate is not a panacea, but it is a starting point, and the effects start building immediately. We’re already seeing that in the US.
As the chief executive of Rio Tinto, Jean-Sebastien Jacques, recently pointed out, global businesses have no choice but to move people, jobs and money to countries that offer the most competitive environments.
He rightly argues that we cannot ignore the big picture – it’s not mining company against mining company, the real contest is Australia versus India versus Brazil.
Many of our biggest employers are multinationals, including BHP, Wesfarmers, IBM, and Woolworths. Do we want them and businesses such as Australia’s largest meat packers, marketers and exporters to rethink their local footprint? For example, JBS Australia employs 8500 people, supporting the meat industry across regional and rural Australia.
And what about the success story of Brisbane business Ferra Engineering, which has a coveted supply contract with global aviation giant Boeing? Ferra supplies major parts for Air Force wing kits, supporting up to 30 local suppliers.
All companies must invest over time to continue to operate and generate profits for shareholders – which is everyone who has a superannuation account, as well as almost 6 million mum and dad investors.
Some have raised concerns that shareholders could lose out if businesses pay less company tax. They won’t. The company tax rate for Australian shareholders is effectively zero and will continue to be with a 25 per cent tax rate.
Australian shareholders will benefit from higher investment and company earnings over time, and, like the rest of us, they’ll miss out if investments go offshore.
This opinion article by Jennifer Westacott was published in the Courier Mail on 5 March 2018