Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

Before I begin on the bill in question, I want to associate myself with the remarks from the chair just now. I know that's the feeling of members across this parliament. The people who spoke on this motion were some of the best people in the parliament, in my view, including the member for McMillan and especially the member for Hotham. That is a tribute to Mickey Gordon. Given how we in this building loved him, I can only imagine what his family must be going through at this point and the scale of their loss. I just want to record my thoughts on that matter and thank the chair for that opportunity.

Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

On the bill in question, the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017, Labor will not be supporting this $65 billion tax cut for business. That is not news to anyone who has been following the political debate in recent times. But it is worth noting in the chamber here today the symbolic value of this bill because it highlights the Turnbull government's ideological blinkers. It's worth noting its lack of economic courage and imagination, lack of vision, lack of leadership and lack of foresight for the kind of country that we want Australia to be. This bill represents the wrong plan for Australia, the wrong plan for economic growth, the wrong plan for wages growth, the wrong plan for fighting inequality, the wrong plan for increasing Australia's competitiveness, the wrong plan for working Australians and, certainly, the wrong plan for budget repair.

It's the wrong plan for economic growth. We know this because of the government's own figures. Since this bill was first introduced—the whole package of the bill, not just the bits that the government has been able to get through the parliament so far—the economic growth dividend of this bill is one per cent of economic growth in 20 years time. We ought to fight for every scrap of economic growth we can in this parliament. Economic growth benefits all of us—it helps us to fight inequality and helps us to increase our quality of life—but what a paltry return for a $65 billion unfunded cost to the budget. I highlight that because the opportunity cost of this bill is significant. This is $65 billion that could be invested in the education of Australia's children, something that would have a dividend for economic growth. This is $65 billion that could be invested in the skills of the Australian workforce. This is $65 billion that could be invested in infrastructure, increasing the productivity of the engines of economic growth in our nation, cities—the 0.2 per cent of Australia's landmass that currently produce around 80 per cent of Australia's economic activity.

Indeed, nearly 70 per cent of Australian GDP is generated within the cities of Sydney and Melbourne. The productivity of these areas is crucial to the success of our national economy. Despite this, we see no vision from the Turnbull government for investment in urban infrastructure. The Deputy Prime Minister, the new Minister for Infrastructure and Transport, has outlined no vision for the role of his portfolio in doing this. Certainly, the New South Wales Deputy Prime Minister, taking a similar approach to the New South Wales Prime Minister, is not allocating funding for Victoria. Victoria has 9.7 per cent of federal infrastructure budget spending despite having 25 per cent of the population and being the growth engine for Australia in both population and economic terms. Where is this government's vision for infrastructure investment in Victoria?

This bill is also the wrong plan for wages. As the Reserve Bank governor has noted, a lack of wage growth in this country is the real crisis in our economy. Over the last 10 years, real labour productivity grew by 20 per cent, while real wages grew by only six per cent. Wages share of GDP is well below the average of the last 50 years. Wages growth is the lowest since we started collecting records. If that's not bad enough, the Reserve Bank has warned workers to expect stubbornly low wage growth for some time yet. Despite the Treasurer's claims of better days to come—the cheque's in the mail—workers are not seeing that impact on the hip pocket.

There's plenty that this government could be doing to help wages growth in this country. They could be looking at boosting the minimum wage, changing the rules for enterprise bargaining or taking an aim at provisions which allow employers to terminate workplace agreements and force workers back toward minimums. There's plenty more that could be done in reducing the gender pay gap, making industrial relations more user-friendly for small businesses, bringing intractable workplace disputes and negotiations to an end, making the Fair Work Commission easier to access, providing job pathways for people with disabilities, tackling discrimination of older workers so that they stay in the workforce and earn wages for longer, and helping younger people enter it in the first place. These are things that the government could be doing to increase wages growth, not cutting company taxes.

We know that corporate tax cuts do not directly lead to wages growth. As Michael Keating AC, the former head of the departments of Employment, Industrial Relations, Finance, and Prime Minister and Cabinet of the great Labor governments of the eighties and early nineties, recently wrote:

Despite the evidence of the last few decades that 'trickle-down' economics doesn't work, big business and its apologists in the media are calling for a company tax cut to stimulate investment. The reality, however, is that increased investment is principally in response to increasing aggregate demand. The required increase in aggregate demand in turn requires less inequality and faster wage growth, not bigger business subsidies.

What Michael Keating is saying in that statement is that companies don't invest because of the scale of their profits; they invest because of the scale of their markets. They invest when they think they'll earn a quid. That's the challenge that we need to be fighting. If we want to increase the size of markets in Australia, we have to tackle inequality; we have to tackle the spending capacity of middle- and working-class Australians.

This bill is the wrong plan for tackling inequality in Australia. Inequality is at a 75-year high in Australia. Over the last four decades, real wages growth of the top 10 per cent of income earners has grown by 72 per cent, more than three times the rate of increase for real wages than that of the bottom 10 per cent of income earners.

A division having been called in the House of Representatives—

Sitting suspended from 16 : 44 to 17 : 08

As I was saying, inequality in Australia is at 75-year highs, and over the last decade real wages for the top 10 per cent of income earners have grown by 72 per cent, which is three times the rate of increase in real wages for the bottom 10 per cent. If we want to do something about increasing aggregate demand in the Australian economy, we need to do something about inequality. We need to do something about the spending capacity of working-class and middle-class Australians.

And it's not just me saying that. It is economic heavyweights around the world who have said that inequality has gotten so far out of kilter that it's now acting as a brake on growth around the world. Indeed, Nobel prize winning economist Joseph Stiglitz has argued that we can no longer talk about rising inequality and sluggish economic recovery as separate phenomena; they are in fact intertwined. Inequality stifles, restrains and holds back growth. The IMF has agreed, finding:

If the income share of the top 20 percent increases by 1 percentage point—

and this is what's happening in Australia—

GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down. Instead, a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.

The OECD echoes these points, noting that:

Rising inequality by 3 Gini points, that is the average increase recorded in the OECD over the past two decades, would drag down economic growth by 0.35 percentage point per year for 25 years: a cumulated loss in GDP at the end of the period of 8.5 per cent.

This belies the ideological blinkers of the Prime Minister's claims that Labor is not interested in promoting economic growth. We are interested in promoting economic growth; we just have a different view. We have a clear-eyed view of the problems confronting the Australian economy and the handbrake of increasing inequality on economic growth in Australia. The Prime Minister cannot see that in the modern international economy, if you want to do something about growth, you start by doing something about inequality—a better spread of wealth, putting the middle and working class in a better position to spend and increasing aggregate demand, something that will flow through to workers' wages. We know that inequality is not inevitable. While they are macro trends, policy interventions can do something about it. The problem is that the corporate tax cuts before the House pour fuel on the fire; they make things worse. The Treasurer, noted economic expert, told AM yesterday that his corporate tax cuts would 'help resolve inequality issues' like they're some kind of magical economic elixir. It's not medicine; it's fuel for the fires of growing inequality.

To understand why this is, let's look at how economic forecasters have responded to Donald Trump's tax cuts. CNBC's Fed survey asked US forecasters how US corporations will respond to the reduction in the US corporate rate. Just 12 per cent of respondents believed that it would be spent on increased wages, the position of the Prime Minister and the Treasurer. A little more, 23 per cent, thought that it would be spent on capex, investing in the capital of companies; 13 per cent thought it would be spent on debt recovery, ultimately increasing the profit take; and 36 per cent thought it would be spent on share buybacks and special dividends. These forecasters believe that the bulk of that tax cut will go to increasing returns on capital. I'll give you a tip: that won't make inequality any better. Overall, just eight per cent of the 40 respondents, who include economists, strategists and fund managers, say that workers would benefit the most from Donald Trump's tax cuts. Fifty-four per cent said that it would be shareholders and executives. That is the impact of these bills on inequality.

At the same time, we note that the government is increasing the Medicare levy for seven million Australian workers. The Prime Minister will increase taxes for everyone earning over $21,000 a year—of course, that won't be the case for millionaires, though; they lost their deficit reduction levy, meaning that they will get a tax cut of about $21,000 a year, but let's just park that. These measures mean that tax increases under this government will be worn by police, firemen, tradesmen and teachers, while there will be tax cuts for millionaires, multinational corporations and our banks.

One of the refrains that we've heard is that these measures are necessary because we need to follow Donald Trump's America. Because they have reduced their corporate tax cut, the competitiveness of the Australian economy demands that we follow suit. Let's look at our competitiveness as an investment destination. We know that company tax is far from a determinative factor in investment decisions, otherwise you wouldn't be seeing the volume of investment in Australia from jurisdictions with lower corporate tax rates than we have in Australia today. It would not make sense if it was a determinative factor that jurisdictions with lower corporate tax rates invested in Australia, with a higher corporate tax rate. We know that company tax is just one of a range of considerations that drive investment decisions. Corporates want to know whether they can make a return, and that depends on the location of resources needed to make a return, natural and people resources, the strength of institutions to protect returns, security of investment, the skills of the domestic population, macroeconomic conditions and stability of the policy and regulatory environment. You can imagine the kinds of policy interventions that the government might be considering, taking those elements into consideration, to attract more foreign investment to Australia. A competent government would be a good start. A government that wasn't constantly flip-flopping and backflipping, as is characteristic of the Turnbull government, would probably help. A stable energy policy that wasn't driven by the troglodytes on the coalition back bench would also make a contribution.

But, even if we take tax alone, let's look at how Australia compares with the US. The US Congressional Budget Office prepared analysis to inform debate in the United States in March 2017 titled International comparisons of corporate income tax rates. They noted that the corporate statutory tax rate is one of many features in the tax system that influence corporate behaviour but, importantly, noted:

Because of their broader scope, average and effective corporate tax rates are better indicators of a company's incentives to invest in a particular country than is the statutory corporate tax rate.

This report didn't just look at the nominal rate; it also looked at what was actually paid. That analysis, which is free for everyone to see, put Australia's rate in the lower half of the G20. The paper pointed out that, while the headline rate was 30 per cent in 2012, the average rate for Australia was 17 per cent and the effective rate was 10.4 per cent. Indeed, the report used Australia as an example of why the US needed to cut its corporate tax rate. Finally, this bill before the chamber is the wrong plan for budget repair in Australia.

The provisions in this bill represent a significant structural deterioration of the budget over the medium term. Remember the glory days of the Abbott opposition when they had a shadow minister for debt reduction? On the watch of the current Deputy Prime Minister and former member Andrew Robb—remember the debt and deficit disaster, the budget emergency and the debt truck?—the deficit has blown out and debt has crashed through the half-a-trillion-dollar tax mark. They like to say we need to cut corporate taxes because that's what the Keating government did. Well, the Keating government didn't do unfunded corporate tax rate cuts. They did the hard work of funding it. One of the more annoying features of being a Labor MP these days is being lectured about the legacy of the Hawke-Keating government by people who have no idea what that legacy is.

We should recall that when the Hawke-Keating government reduced corporate taxes they introduced a fringe benefits tax, they introduced a capital gains tax and they put an end to the bottom-of-the-harbour lurks and perks. They funded the corporate tax cut. In response to that, an editorial in The Australian in 1985 attacked Labor for class warfare and said the tax package which cut corporate taxes represented a bias against business. The Business Council of Australia labelled that government 'anti-business'. The more things change, the more they stay the same. Labor are committed to a taxation policy that doesn't do unfunded corporate tax cuts. We've looked at whether there are inefficiencies in the taxation system—negative gearing, super concessions and the taxation treatment of trusts—and we've acted responsibly on those fronts. We have a plan for the Australian economy, not an ideological blinker.