The Senate cross-bench appears to be firming against the Turnbull Government’s full company tax cut package, which would have seen the company tax rate fall to 25% from 30%.
Senator Jackie Lambie has joined the Nick Xenophon Team and One Nation in calling for tax cuts to be restricted to small businesses only. From The Australian:
“It’s the SMEs (small and medium-sized enterprises) that are paying the price out there right and we need to be throwing everything we possibly can at them,” Tasmanian independent senator Jacqui Lambie told ABC radio on Wednesday.
“If you really want these SMEs working, especially in these rural and regional areas where they’re doing it tough, then give them a bigger tax cut and throw it at them now because they need it.”
But Senator Lambie has no appetite for cutting taxes at the big end of town.
“I certainly think giving more tax cuts to big business – especially when there’s 600 out of the top 1500 companies not paying tax and we’re going to give them more tax exemptions – I’m not into that at all,” she said.
Lambie probably doesn’t understand that cutting company taxes will have minimal benefits for small businesses (but also minimal impacts on the federal budget). This is because 98% of small businesses (employing four or fewer people) are wholly Australian owned and because of this, they are subject to Australia’s dividend imputation system. Effectively, any cuts to the company tax rate will be largely offset by commensurate cuts to franking credits. Thus, small businesses should be largely indifferent to company tax cuts.
By contrast, the cost of cutting company taxes to all businesses (large and small) would be immense – estimated at $8.2 billion a year once fully implemented – because large foreign-owned businesses that are not subject to Australia’s dividend imputation system would also receive the cuts. For these foreign-owned business there would be no offset in the form of lower franking credits, therefore, a company tax cut would represent a financial windfall from Australian tax payers, hence lowering national income.
It appears that the Coalition has all but accepted defeat on the issue. From The AFR:
In question time on Tuesday, Mr Turnbull argued for the philosophy behind the cuts but twice declined to give a clear answer when pressed by the opposition about whether they would be in the budget.
“If you increase the return on investment, you get more investment, you get more investment, you get more jobs,” he said.
“We’re committed to growth. We’re committed to jobs. We’re committed to opportunity.”Similarly, Mr Morrison left himself wriggle room for what the government would do after next week, which is the last week Parliament sits before the May 9 budget.
“The government is absolutely committed to our comprehensive economic plan to support jobs in this country,” he said…
Shadow treasurer Chris Bowen, who pursued the government in Parliament, declared the cuts dead.
“Malcolm’s big idea – a $50 billion tax cut for big business – didn’t even survive the government’s first budget,” he said after question time.
“It was Malcolm Turnbull’s election centrepiece and the one-point plan that went with the ‘jobs and growth’ slogan.“This is the latest and arguably the biggest issue to leave Australians scratching their head on what exactly Malcolm Turnbull stands for.”
Whatever the case, we should be grateful for the Senate for abolishing the Coalition’s retrograde company tax cut policy.
