Let me make a fearless prediction: big business will get no cut in the
rate of company tax in Tony Abbott's first term, and probably not in a
second term, either. What you see before you now is all you're likely to
get.
I doubt whether Abbott will break his promise to cut the company
tax rate by 1.5 percentage points to 28.5 per cent from July 2015. But,
of course, big businesses will get nothing from that. They'll be paying
the new 1.5 per cent levy on big company profits to help finance
Abbott's more generous paid parental leave scheme.
On Joe Hockey's
own figuring, the levy will claw back 90 per cent of the cost of the
company tax cut, leaving most listed companies no better off. The losers
will be the Australian shareholders of those companies, who'll have
1.5? in the dollar shaved off their dividend franking credits.
The
point to take away from these ins and outs is that, though the cut in
the company tax rate yields no net benefit to big businesses, it still
represents a $4 billion-a-year hit to the budget because Abbott
effectively excused big business from bearing any net cost to cover the
additional budgetary cost of souping up parental leave.
So
Abbott's already done his dash on cutting the company tax rate. He's
already made a cut he can't afford and it looks like being a mighty long
time before budget finances return to being healthy enough - and the
surplus fat enough - for him to afford another rate cut.
This is
why more realistic proponents of a lower company rate accept that some
explicit source has to be found to cover the cost of the cut. So any
rate cut would have to be part of some give-and-take package that left
the budget no worse off in net terms.
This, in turn, is why any
rate cut would be part of a tax reform package that emerged following
yet another major review of the tax system (as if the Henry report
became useless on September 7).
But there's no magic in this
process. The potential sources of higher taxation to cover the cost of a
company rate cut are obvious and limited.
Many business
executives dream of the goods and services tax being increased to cover
the cost, but Abbott's repeated election promise that "there will be no
change to the GST, full stop, end of story" puts paid to that. In any
case, the premiers have a much stronger claim on any increased
collections from the GST.
The other potential source is
base-broadening: using the reduction of sectional tax breaks to pay for a
cut in the rate of the tax. Julia Gillard attempted to get agreement to
such a deal from the business lobbies in 2011, but no industry wanted a
rate cut badly enough to be prepared to give up concessions.
Only
to be expected? Such is the growing rapaciousness of the industry
lobbies that you're probably right. But get this: all previous rate cuts
(and we've come down from a rate of 49 per cent in the late 1980s) have
been funded by government-imposed broadening of the company tax base.
Above
all, remember this: Labor did come up with a package that would have
financed a 2 percentage-point rate cut, but dopey big business let it
slip through their fingers.
What was paying for the rate cut? The
original resource super profits tax, of course. But business sat around
with its eyes, ears and mouth closed while the largely foreign-owned big
mining companies conspired to escape paying any specific tax on their
huge resource rents.
Abbott is about to play out the last act in
that monumental exercise in legal tax evasion by abolishing the mining
tax before the exhaustion of accelerated depreciation allowances turns
it into a much better earner.
Equally remarkable was the rest of
business' inability to see it was they who were being ripped off by the
miners, not some hated Labor government. It never crossed their tiny
minds that the budget isn't a bottomless pit or a magic pudding; that if
the miners get in first, there's not much left for everyone else. It's
called opportunity cost.
It's time business woke up to the crude
facts of fiscal life: the two most hugely profitable parts of our
corporate sector are banking and mining. The more their economic rents
are adequately taxed, the easier it is to afford to cut the company tax
rate for everyone.
Abbott's abolition of the mining tax is the last nail in the coffin of the case for a lower company tax rate.
