Company tax cuts to be scaled back

The Australian, September 15, 2016:

The Turnbull government is preparing to split its $48.7 billion company tax reform bill in order to secure an immediate gain for small employers, forcing it to shelve almost all of its core economic policy in the face of certain defeat in the Senate.

Scott Morrison is putting his focus on tax relief for small businesses with revenue of up to $10 million a year, cooling hopes for a wider enterprise tax plan that would boost big business but has been flatly rejected by Labor, the Greens and key crossbench senators.

The government strategy is to fight for its election policy in its original form in parliament as soon as next month, passing all the company tax cuts through the lower house in order to honour a commitment to voters and employers. But the government has scaled back its ambitions for the full package to emphasise the tax cut in the first year of what was meant to be a 10-year plan to ­reduce the corporate tax rate from 30c to 25c in the dollar for every company.

The government is confident of legislating the first element of the plan to reduce the tax rate to 27.5 per cent this year for small business with turnover of $10m.

The Australian has been told the government strategy is to split the bill when the Senate rejects the tax cuts for big companies, ­acknowledging the will of parliament and adjusting swiftly to ­deliver benefits to small business.

The Treasurer told Sydney radio station 2GB on Monday that he had introduced the changes to ease the burden on small and medium businesses with turnover of up to $10m, but he made no mention of the big business tax cuts also included in the package.

He also highlighted the gains to be delivered to small employers this year when outlining the reform in question time on Monday, arguing for the economic gain from the tax cuts even though economists believe the greatest boost comes from the company tax cut to the biggest companies.

“The growth continues to come, the jobs continue to come, but you cannot be complacent about it,” Mr Morrison told parliament. “That is why we introduced legislation to ensure that bus­inesses, particularly small businesses with a turnover of less than $10m, will be able to access the ­instant asset write-off, they will be able to access depreciation pooling provisions and they will be able to access a lower rate of corporate tax. That is for one reason: so they can reinvest the earnings back into their business.”

He did not mention tax cuts for bigger companies.

The Business Council of Australia has urged the Coalition to stick to the entire tax plan but some members of government are privately blaming corporate chiefs for not doing enough to argue for the reforms during the election.

With the Senate veto seen as a certainty, the government cannot rely on the economic gain it promised during the election campaign on the grounds that global companies would ramp up investment — and growth — in the next few years in the sure knowledge that they would get a tax cut over time.

Labor has identified the shift in the government’s message but is holding out against the $10m threshold, arguing that the lower rate should go to employers with turnover of only up to $2m.

The government hopes to ­secure an agreement with the Nick Xenophon Team and Pauline Hanson’s One Nation, the Greens and other crossbenchers to legislate the $10m threshold.

The Treasury Laws Amendment (Enterprise Tax Plan) Bill introduced on September 1 costs $5.3bn over the four years to June 2020 but has been structured in three schedules to allow the easier passage of non-controversial measures such as a tax discount for unincorporated small businesses (costing $450m) and a small business tax offset ($2.2bn).

The cut in the company tax rate costs $2.7bn over the four years but the budget impact mounts steeply after that if the lower rate is passed on to bigger companies. The bill lowers the company tax rate to 27.5 per cent to businesses with turnover of up to $10m this year and extends this to a threshold of $25m in the 2018 financial year and to $50m in 2019.

The original bill extends the 27.5 per cent tax rate to businesses with a turnover of $100m in 2020 and makes similar increases every year until 2023, at which point the rate is lowered year by year to 25 per cent for all companies.

The government is preparing to blame Labor for failing to pass the benefits on to all employers ­despite contested arguments from economists about a growth boost to the economy if the cuts were legislated in full. But some MPs blame corporate chiefs for failing to offer enough support to the government during the campaign, ­resulting in an immense challenge to pass the original reform.