Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

The Greens will not be supporting any tax cuts today, and I would like to spend the next 20 minutes to explain why. Firstly, we are very proud that we took a policy for small business to the 2013election, including a tax cut and a whole range of measures designed to help small business get ahead. We worked constructively with the government following the 2013 election, and we played a critical role in getting that small business package delivered and passed into legislation.

There are two key arguments the government use for supporting their Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016. The first is that somehow this is going to deliver jobs and growth. Let's be very clear about this: this is the central, capstone policy of this 46th parliament for this Liberal-National government. This is the capstone policy to deliver us a future in this country over the next 10 years, and it relies on voodoo economics. It relies on the concept that, somehow, if we give companies more profits then those profits will trickle down into the economy, delivering wealth and jobs. This is based on the Laffer curve of the 1970s, a theory that has been thoroughly debunked; there is no empirical evidence whatsoever to support it—and I will discuss that more in a minute. The second reason the government use to support tax cuts for businesses, including big businesses, is that somehow we will suffer from a lack of foreign investment if we do not cut our tax rates.

I want deal with comments made by the head of the International Monetary Fund, Christine Lagarde, at Davos in January this year. She made a very interesting statement in light of what we are considering here today in the Australian parliament. Her statement also applies to foreign jurisdictions such as the US economy. She was asked a question about what she saw as being the black swan events for 2017 in the international economy. For those who are not aware, black swan events relate to generally unforeseen but high-risk events that can rock financial markets and economies. Christine Lagarde is possibly one of the most influential and important leaders in international economics and she had this to say:

If the disruptions we are expecting for 2017 as a result of what has happened in 2016 prove to be all negative and we are to end up in a race to the bottom on the tax front, on the trade front and on the financial regulation front, then that for me would be a really big black swan that would have devastating effects for countries other than those that are likely to cause it.

To repeat that: in direct reference to corporate tax cuts that Donald Trump, the US President, had been talking about, the head of the IMF, at the beginning of the year at the premier international conference, said that major cuts to taxes could have devastating effects—a 'race to the bottom'—on the global economy.

So much for tax cuts having a positive effect on the economy, which no doubt speaker after speaker across the chamber in the Liberal-National Party are going to come in here and tell us. This is the head of the IMF saying to us that 'a race to the bottom'—and nobody wins in a race to the bottom—is going to be a significant economic risk to the global economy this year. This is a race that our Prime Minister, Malcolm Turnbull, is about to fire the starting gun on today. Here we are in the Senate, lining up to get ready for that race—a race to the bottom.

Interestingly, it is not just Christine Lagarde, the head of the IMF, who has been making comments. When I thought about the corporate tax cuts myself, I reflected on my experience working in finance. I spent 10 years at the University of Tasmania teaching international finance to MBA students and to undergraduates. I have a pretty good idea of how businesses make decisions, especially around direct foreign investment, and I was aware that tax was only one of many factors in consideration by corporations when they look at foreign investment.

Let's have a look at whether a high tax rate in this country relative to other countries has affected our foreign investment. There is a very interesting report put out by the The Australia Institute that says that cutting company tax will not drive investment, and it outlined an analysis that finds that 97 per cent of applications to Australia's Foreign Investment Review Board come from countries already with lower tax rates than Australia and that by value 71 per cent of applications come from countries with lower rates.

All this raises the question: if Australia is already successful at attracting foreign investment, why would we give tax cuts to foreigners? It goes on to say that history shows that, when Australia's tax rates were adjusted in the past, foreign investment did not go the way we expected. When the rate climbed to 49 per cent in the 1980s, there was a rise, not a drop, in foreign investment. I encourage all senators to read that report—I will actually quote it again in a minute. It has some very interesting empirical evidence and analysis.

But let's get back to what corporations think about a tax cut. Canada's largest pension fund, with $300 billion under investment, called the Canadian Pension Plan Investment Board, was asked this question in Australia last month. I put this question to Senator Cormann in estimates and to Mr John Fraser, the head of Treasury, as I did Christine Lagarde's comments which they batted off. They said they disagreed with the head of the IMF that a 'race to the bottom' in corporate tax cuts was a risk to the global economy. I asked them about the comments by the Canadian pension fund that stated:

As investors we frankly value the cash flows. What matters to us is predictability—it is not so much the level of tax paid. We look at the predictability of the system and we think Australia rates quite highly on that measure.

From a tax perspective, as long as we know going in what we are buying we are happy. We think Australia will maintain its competitiveness and the tax rate will not affect that.

This is one of the biggest foreign investors in our country, especially in the area of infrastructure, batting away and rejecting commentary that Australia may lose its international competitiveness if we do not cut corporate tax rates and join in this race to the bottom with the US President, Donald Trump, and with Britain.

When I put that question to Mr Fraser in estimates he did not agree with the Canadian pension fund, but he has had experience working with them in the past. But he has previously said that he does not necessarily believe that big businesses, which are going to get the bulk of the benefit of corporate tax cuts—have no doubt about that—necessarily put much emphasis on them either. He said, 'If anything, it is a second- or third- or fourth-rate consideration for them.' He did say—in all fairness—that a cutting of the corporate tax rate would be a good thing for small and medium business but for big business it was not necessarily the case. So he has made his views clear. I find it quite interesting that even the head of Treasury has previously been on record as saying that he does not believe that corporate tax cuts will necessarily impact foreign investment, especially for big businesses.

David Gonski, another leader in the business community in Australia, has also said that tax cuts are not the best solution. He was quoted recently, in the last month, in the Australian media in relation to this debate declaring that cutting the corporate tax rate would make little difference to large Australian companies. This is putting him at loggerheads, interestingly, with the Business Council of Australia. He argued that other measures such as accelerated depreciation rates would make a much bigger difference to companies than cutting the corporate tax rate. He said, 'To take one part of the tax system and dwell on it is really not the way to do it.' This is one of the most respected businessmen in this country, who we are all very familiar with based on his work around the Gonski education reforms.

Why are the Business Council of Australia, who represent the big end of town, so keen on seeing a cut to company tax? As you would probably guess, they stand to benefit from it the most, with billions of dollars in extra profits that will flow to their members. But what is really interesting when you look at the Business Council of Australia, who have been the key lobbyists for cutting the corporate tax rate from 30 to 25 per cent, in particular suggesting that it will affect foreign investment in this country if we do not, is that transparency reports that have now been lodged with the ATO show that the Business Council's members paid an effective tax rate in 2014-15 of just 24.3 per cent. An effective tax rate incorporates deductions against tax, which are perfectly legal and allowable deductions, by the way, but their effective tax rate—the real tax they pay—is already below the 25 per cent that they want us, in this Senate chamber, to cut the corporate tax rate to, which means that their effective tax rate, if we cut the headline rate to 25 per cent, will be around 20 per cent or less. So, if we look at this debate just on the headline rate, not think about the deductions and take a holistic approach to the issue, we see that it is also voodoo economics. May I say that we have heard different measures of what the Business Council of Australia's members pay, but, when it comes to multinational corporations themselves, a report last year found that 76 of Australia's largest multinationals pay an effective tax rate of just 16.2 per cent. That report was released by the Tax Justice Network. We have also seen reports by tax experts from the University of Technology Sydney, who have provided data for the top 100 companies, and they find that there are very low effective tax rates in this country.

It has not escaped my attention that recently there has also been work done by the Grattan Institute, who are often quoted in this place and the other place across the corridor because of the great work they do—and, by the way, the Greens do not always agree with what they put out, as you can imagine. Nevertheless, on this issue they went to great lengths to point out that a cut to corporate tax rates will benefit foreign investors more than domestic investors. Because the profits will be taken offshore, the impacts on the economy, especially in the first eight to nine years, of a cut in the company tax rate to 25 per cent will be very limited. There has also been a lot of criticism of the modelling that was used by the Treasury group that was commissioned to do the modelling. I do not have time to go into it today, but there is an enormous body of international work that thoroughly debunks the myth that, somehow, if we give corporations more profits, that will benefit us. In my observations and view of the world, it seems that it is trickle-up that has worked.

It would be a fascinating exercise to go to these corporations, who essentially we will be giving over $50 billion of taxpayer money to via these tax cuts, and ask them what kind of social contract we could put in place to guarantee that they will reinvest all that taxpayer money—and it is taxpayer money, because that is what we are currently collecting. In this social contract, will they invest that in jobs? Will they invest that in better conditions and pay for workers? Will they invest that in Australian communities? That is what our job is in government. It is to raise revenue and to invest that in our community across education, health care, national security or whatever it happens to be—that is our job, and that is the key cost. The modelling around the benefits in this trickle-down economics, this voodoo economics, of corporate tax cuts has been disputed and is very sparse on detail, but we do know what the costs are of these corporate tax cuts. They mean tens of billions of dollars in revenue forgone that could be better spent in other parts of the economy. I also recommend that senators examine the report by the Australia Institute on this, which actually goes into the detail of those opportunity costs.

So what could we do? If we do actually want to stimulate jobs in our economy and invest in the long-term future of our communities, what could we do as senators and in government? We have a lot of options ahead of us apart from cutting corporate tax rates and giving some of the biggest, wealthiest corporations in the world extra money in their pockets, taken directly out of our pockets. What else could we do? Just about every economist and every commentator in this country is talking about the need for the government now to significantly invest in long-term productive infrastructure in Australia. I chaired a select committee that went for nearly nine months that looked at this issue extensively. At every estimates I ask the Treasury secretary and others about why we are not doing more to invest in productive infrastructure. Right around this country, we have hundreds of billions, if not trillions, of dollars in underinvestment in our future. At record low interest rates, we have an opportunity to spend on capital. I am not referring to recurrent expenditure—I agree that carries significant risks—but why aren't we doing more now to invest in our future? The head of the Reserve Bank makes this point in every single public speech. I have heard evidence from Saul Eslake, John Hewson and so many economists that now is the time. I do not believe that at the moment we have the right structure around infrastructure spending in place through Infrastructure Australia. We need more transparency. We need proper cost-benefit analysis done. When need to depoliticise the process and reduce the risk so that we can actually get private investors involved in this issue.

The Greens took a policy to the last election—I know Labor had a slightly similar one—around a government owned infrastructure bank that would totally restructure Infrastructure Australia, make this investment process arm's length and look at how we can get the private sector to co-invest in infrastructure. I am not just talking about roads and public transport. I went around the country, including to smaller towns like Townsville, Wagga Wagga and other places, and heard about their infrastructure needs.

There are so many projects waiting for funding that would benefit communities and benefit productivity. Some of them can be monetised and some of them can even be securitised. Local government in my home state of Tasmania is crying out for just $2 billion to invest in 30-year sewerage infrastructure, because our infrastructure dates back, in some places, over 100 years. But it does not have the money, because the federal government is not making a pool of cheap finance available for long-term investment. If coalition senators actually want to stimulate jobs and growth, and they are serious about it, I ask them to consider why they are underinvesting in infrastructure in this country.

We can invest not only in jobs. We can invest in communities. We can invest in the environment. We can do a much better job by getting on and immediately stimulating our economy. We believe the government should play a very crucial leadership role on this issue. We are going down the wrong road in cutting corporate taxes. There is so much more that we could be doing. There is no evidence at all that corporate tax cuts work. This is the government's cheerleaders, the Business Council of Australia—no doubt many of those companies are donors to the Liberal-National Party.

We do not believe that this is the right way to go. Just to reiterate: the Greens will not be supporting any tax cuts today. We believe this is a race to the bottom that we do not want to be a part of. Nobody wins in a race to the bottom on corporate tax cuts.