It’s one of the few bits of Liberal economic policy left in the budget – and judging by the pathetic way it’s being sold to the public, the government seems almost embarrassed by it. Apart from the incompetent manner of the reluctant revelation of its extra year adding another $16 billion to the bill, the only thing wrong with the $65 billion cost to the revenue (spread over 10 years) of the dragged-out five per cent gradual reduction in company tax is that the cost ought to be much higher. If this tax cut does what is really needed to boost the economy, corporate earnings would increase by far more than the Treasury’s (unpublished) 10-year assumptions. And so would the company tax they’d have to pay. The more profitable they get and the more tax they pay (at 25 instead of 30 per cent), the bigger will be the ‘cost to the revenue’ of the five per cent tax concession that brought about this economic benefit. Hopefully, the cost to revenue will soar (along with company tax receipts) to well above the $65 billion 10-year total that Bill Shorten dismisses as no more than a ‘useless’ gift to foreign multinationals and the big end of town. The bigger the ‘cost’ means the greater the success. It’s a pity the government isn’t saying so.
Another blunder is the government’s political failure to deal with Shorten’s dishonest and hypocritical line (in view of his previous strong public support for company tax cuts) that ‘this is not the time to give a $65 billion gift to multinationals and the big end of town’ as if $65 billion was suddenly being handed out rather than being the accumulated cost spread over 10 years. Only small and medium businesses have so far been legislated to benefit from 10 years of gradual reductions in tax rates while big companies are not planned to get any relief for the next seven years and only the full five per cent after 10 years. It’s a Mediscare-type dishonesty to assert ‘now is not the time’ and ‘we cannot afford it now’ when the dreaded $65 billion is simply not happening now (although whether it should is another matter) – and the accumulated 10-year cost is not until 2027-28. This year the projected cost was $400 million, a tiny fraction of the $63 billion companies pay in tax, lifting to less than $1 billion by 2019-20 when companies’ tax bill rises to $92 billion. As Liberal holy writ dictates: without a profitable private sector, which employs 85 per cent of Australians, there can be no economic growth – and no jobs. There is no doubt that leaving company tax rates among the developed world’s highest when competitors are universally cutting theirs, is not a rational option – except for Shorten.
But we should be grateful for the small mercy of this gesture towards Liberal values in a budget that otherwise deserts them – admittedly, in some instances, with good reason. For instance it is a bit harsh to condemn the government for not having the traditional hard-hitting budget in the first of its three-year term so that the nasties will have done their good work three years later at election time. But when you can’t get the nasties through the Senate, all you end up with is the blame for being nasty without the gain of their effectiveness; all the political costs but none of the political benefits. As Paul Kelly, the Australian’s astute political commentator said of the budget: ‘It is an admission of reality that neither the public nor parliament will tolerate unpopular policies and spending cuts to deliver the surplus and intergenerational fairness we need’. But Kelly’s sombre conclusion should alarm us all: ‘Turnbull and Morrison bowing before this truth is a turning point for a nation that is in retreat from the pro-market post-1983 reform age that delivered such prosperity… Politics is now a contest about the nature of tax increases, the scope of monumental social spending initiatives and the type of government intervention. Labor and the progressives have won the battle of ideas…. the political contest will critically shift further to the left.’ By abandoning their political soul the Liberals deserved to lose that battle —and probably office.
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