Senate cross-benchers – One Nation and the Centre Alliance – which together control five Senate seats have demanded the Federal Government legislate income tax cuts proposed for 2018-19 separately from future tax relief outlined in last week’s 2018 Budget. One Nation leader, Pauline Hanson, argues there could be a recession before all three phases of the seven-year tax cuts package take effect. From The Australian:
Phase one of the package, containing tax relief for low to middle-income earners in 2018-19, has been linked in legislation to a flattening of the tax rate in 2024-25 at 32.5 per cent for those earning between $41,000 and $200,000. While Scott Morrison yesterday defended the decision to ram through all three phases in the same bill, saying it was part of a “holistic plan” to “deal with bracket creep”, Senator Hanson was unconvinced.
“They’ll have to split it,” she said. “We could have a recession. And to make these tax cuts in eight to 10 years’ time is too far ahead.
“I can’t support it.”
Centre Alliance, which controls two upper house seats, backed the One Nation objection. Senator Stirling Griff told The Australian the government “does need to split the bill”…
Already, Treasurer Scott Morrison has ruled-out splitting the Bill. From The Australian:
“This is a full plan, this is a plan that has been well thought through which delivers tax relief for all Australians,” Mr Morrison said.
“What Labor have done is just given a political response to the budget. It’s not an economic response. It’s a pre-election thing that politicians do, that’s what you got from Bill Shorten…
“We will continue to work constructively and respectfully with the crossbenchers to demonstrate how this plan delivers for all Australians, that it actually gives all Australians an encouragement and a reward for the effort they put in and the certainty of getting that tax relief over the next seven years.”
The position from the Senate cross-benchers is sensible. Blind Freddy can see that the projected return to Budget surplus is ‘pie-in-the-sky’ and that the flattening of the tax rate in 2024-25 is highly unlikely to be affordable. Moreover, Labor has committed to unwinding these tax cuts if it is elected, therefore, the chances of them actually being implemented is slim. Therefore, it makes sense to decouple phase one of the package from future tax relief.
If Scott Morrison wants to front the next election with the tax cuts for lower-income earners stillborn in the Senate, it’s his funeral.
Meanwhile, Labor over the weekend flagged that it may pare back the already legislated company tax cuts to businesses with turnovers of $10 million. From The AFR:
Labor is leaning towards reversing tax cuts for about 20,000 small and medium-sized businesses as the tax wars heat up ahead of a super Saturday of five byelections expected late next month.
The move would see tax cuts limited to businesses with turnovers capped at $10 million, rather than $50 million as currently legislated. It would affect businesses employing around 1.5 million people.
Labor has costed various options but is yet to make a final decision on its company tax policy.
But AFR Weekend understands it will go no higher than giving a tax cut to any business with a turnover above than $10 million…
If Labor draws the line at $10 million, as anticipated, it would cover about 870,000 businesses employing 3.4 million people but it would have to revoke the legislated tax cut for those businesses with turnovers between $10 million and $50 million.
Figures supplied by Treasury estimate there are about 15,000 businesses which employ 960,000 people and which have turnovers between $10 million and $25 million. Another 5000 businesses with turnovers between $25 million and $50 million employ an estimated 550,000 people.
However, both One Nation and the Centre Alliance have already shot Labor down:
One Nation leader Pauline Hanson, who controls three upper house seats, told The Australian yesterday she would never support the move to revert to a $10m threshold.
“I will not support a tax threshold of under $50m,” she said. “I am ruling out One Nation support.”
She added: “These are ordinary mum and dad businesses. This could be your takeaway shop or a cafe or a restaurant. These people are doing it tough”…
[Centre Alliance] Senator Stirling Griff… warned that any move to unpick already legislated tax cuts in favour of a $10m ceiling would send people back to the dole queue. “I think it’s very dangerous,” Senator Griff said. “It would be a hit to jobs, that’s what it would be … You’re going to take money away from a very substantial number of small businesses.”
Whether company tax cuts are extended to $10 million turnover businesses or $50 million turnover businesses is rather academic, because it won’t actually provide them with much tax relief nor cost the Budget much. This is because the overwhelming majority of smaller businesses 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, smaller businesses should be largely indifferent to company tax cuts.
