It’s Murphy ’s Law; if there is any possible way to stuff up a great positive political message, a Liberal government will find it. Prime Minister Malcolm Turnbull’s absurd mistake last week over the company tax cuts that are the ‘centrepiece’ of the 10-year plan for jobs and growth in Treasurer Scott Morrison’s shrewd federal budget, has provided an unnecessary opportunity for Labor’s mendacious campaign propaganda machine..
While Labor was making hay last week out of opposing the government’s ‘uncosted’ tax cuts to ‘big business’, what slipped under the radar was that the costs and benefits of these corporate tax cuts would have been fully incorporated in the Treasury’s forecast that the budget deficit would fall from the current $37 billion to only $6 billion by 2026-27 when the tax cuts for small business eventually extend to big business. And the government failed to mention three specially commissioned detailed modelling studies on the impact of a cut of company tax from 30 per cent to 25 per cent, one by Treasury itself and two by independent research bodies that confirm the economic benefits of lower company tax, especially if linked with cuts in government spending. It was not until last weekend that the Australian Financial Review revealed to its readers what the government should have been shouting from the rooftops: Treasury modelling endorsed cutting the company tax rate, saying Australian workers would benefit by way of wages, hiring and living standards. Treasury has ‘for the first time modelled how a lower company tax rate would boost national income… would lead to more capital being invested in Australia, boosting the number of jobs and permanently lifting real gross national income by about $12.5 billion. That would mean additional tax revenue in the long run… Employment growth would also lift by almost 50,000 extra workers… real wages could rise permanently by as much as 1.2 per cent, and investment would likely surge by almost 3 per cent… Workers will retain at least twice as much of the gains in national income that is likely to flow to holders of capital such as shareholders’. And it would bring Australian tax rates more in line with international standards. The AFR concludes with what the Liberal leadership should have been saying: ‘The study highlights the benefits of company tax reform and challenges the widespread view that the only beneficiaries would be the top end of town’.
Labor’s nonsensical class-war cry that Morrison’s politically astute first budget was ‘unfair’ because it favoured the rich at the expense of the poor had little chance of gaining traction among the aspirational voters who will determine the outcome of this election. But that was only until Turnbull’s unguarded, ill-considered and just plain wrong response to a TV interviewer (that ‘Treasury has not identified the dollar cost’ of the centrepiece of the government’s policy plan) provided Labor with a plausible peg on which to hang a coherent, if totally dishonest, attack. When Treasury acknowledged late last week that its (rough) estimate of the overall cost of Morrison’s 10-year gradual cut in company tax rates was almost $50 billion, Labor’s campaign was presented with a propaganda gift that raised doubts over the integrity of Morrison’s budget.
Yet the case for company tax cuts is so overwhelming that Labor’s leaders have previously espoused it. Along with Paul Keating, Bill Shorten and Wayne Swan, Shadow Treasurer Chris Bowen is on record noting that the corporate tax rate needed to be cut to ‘improve the international competitiveness of Australia’s tax rate… to reinforce Australia’s recognised advantages as an investment destination’. So Labor’s line now, as enunciated by shadow assistant Treasurer Andrew Leigh, is the equally dishonest one that ‘this is not the time for a $50 billion handout to big companies’. But the ‘now’ cost over the four years of the forward budget estimates which relates to small business is only $5 billion – one tenth of Leigh’s shonky misrepresentation; big business will not get, even in part, the new tax benefits for another 7 years and not fully for 10 years. But there is a serious potential cost problem — and that is the economic cost to Australia of Labor blocking Morrison’s much-needed company tax cuts.
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