Senate to kill Coalition’s company tax cut package

By Leith van Onselen

The Turnbull Government is looking to junk the bulk of its company tax cut package after key Senate cross-benchers all but confirmed that they will support the package when it goes to a vote next week. Via The AFR:

With this being the final sitting fortnight of Parliament before the May budget, the government will put its 10-year enterprise tax plan to the Senate by the end of next week at the latest.

Nick Xenophon, whose team has a critical three Senate votes, reaffirmed on Monday that he was unlikely to budge from his long-held view that there should only be a tax cut for incorporated businesses with turnover capped at $10 million…

On Monday, Treasurer Scott Morrison refused to say what would happen to the remainder of the package once the Senate had voted. Labor and the Greens oppose the cuts, putting the government at the mercy of the Senate crossbench.

Labor is prepared to grant a 27.5 per cent rate but only to businesses with turnovers capped at $2 million.

“I’m not about to pre-empt anything that’s about to happen in Parliament,” the Treasurer said.

But he again appeared resigned to the reality the Senate would not budge above a $10 million threshold and set about targeting Labor.righty

Earlier this month, One Nation leader Pauline Hanson also signaled she would oppose company tax cuts if the Government is eventually forced to offset the loss of revenue by increasing taxes on households.

While I don’t support ‘small’ businesses getting a tax cut in isolation, extending company tax cuts to companies with turnover of less than $10 million is far preferable to extending it to all companies. According to Janine Dixon from Victoria University, 98% of small businesses (employing four or fewer people) are wholly Australian owned and because of this are indifferent to the cut. That is, they are subject to Australia’s dividend imputation rules. As such, the cost to the federal budget from cutting company taxes will be muted, since any reduction in the company tax rate will be largely offset by smaller franking credits.

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.

In any event, it looks like the Senate will do the patriotic thing and scuttle the worst aspects of the Coalition’s company tax cut policy.

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