Rex Patrick (SA, Nick Xenophon Team) Share this | Hansard source

I rise to contribute to the debate on the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017. The debate over whether to lower the statutory tax rate of 30 per cent for companies has largely focused on the tax rate being too high compared to other countries and the need for lower tax rate in order to be competitive and attractive to investment. The Business Council of Australia and the government continue to argue that Australia's company tax rate is amongst the highest in the world and that if we don't reduce it Australia will be left behind economically. The important point to note is that there are three different figures. There's the statutory rate, there's the average rate and there's the effective rate—and I will talk some more about these.

The Conversation, in its fact check on whether Australia's corporate tax rate is not competitive with the rest of the world, concluded:

It is true the corporate tax rate at 30% is higher than some other countries in our region, but it is average compared to G7 countries. Further, Australia’s franked dividends system means Australian shareholders already enjoy favourable tax conditions on income earned from their investment in companies.

Figures from the US government's Congressional Budget Office show Australia, while having a relatively high statutory tax rate, has a corporate average tax rate of 17 per cent and an effective corporate tax rate of 10.4 per cent. The top statutory corporate income tax rate is just one of several aspects of a tax code that determines the amount a company will face in corporate taxes.

In its comparison, the Congressional Budget Office also looked at the role of corporate tax rates when companies are looking to invest. It said:

When companies are deciding whether to operate in a particular country, they consider, among other factors, the total amount of corporate income taxes they would pay to that country relative to the income earned there. That ratio—the country's average corporate tax rate—encompasses all of the provisions of the country's corporate income tax code. The advantage of using the average corporate tax rate to evaluate investment incentives is that it can capture features of the tax code that are missed both by the top statutory corporate tax rate and by the effective marginal corporate tax rate.

The fact check also says:

… it is true our headline corporate tax rate of 30% is higher than that of our neighbours in the region. But given our system of dividend imputation, it is questionable at best to say that having a headline corporate tax rate higher than our neighbours makes us uncompetitive. Economic and political stability are big factors for businesses making investment decisions, as is available infrastructure, wage rates, other taxes, and the nature of the industry in question.

In fact, I have a report here from ACOLA on Australia's comparative advantage that lists a whole range of factors that are normally considered when you are deciding where to invest. They include, and particularly in relation to Australia, that 'Australia has a well-skilled and effective workforce', that 'Australia has a strong and respected research capability', and that Australia has 'a strong federal structure and rule of law'. It talks about 'institutions in the areas of law, markets and culture' and about 'an inclusive and cohesive society'. There is a range of different measures that are used to determine whether or not a country is the right place to invest in. It's not simply the tax rate.

The simple argument that Australia needs to lower its company tax in order to attract foreign investment is unsound. As I've just highlighted, companies consider a range of factors when deciding to invest, not just the statutory tax rate. Further research undertaken by the Australia Institute in examining the Foreign Investment Review Board figures confirms that a lot of investment comes from countries with lower company tax rates. The report states:

… by value 71 per cent of foreign investment applications come from countries with company tax rates lower than Australia's rate and by number a large 97 per cent come from countries with company tax rates lower than Australia's rate.

While a lower statutory company rate appears attractive in theory, there is little evidence to back up the claims being made by the government that it will boost investment, create jobs and raise living standards. Further, on the analysis conducted it appears Australia is competitively placed in relation to average and effective corporate tax rates.

In opposing these tax cuts, I want to make it clear the Nick Xenophon Team is not anti business. NXT has been and will continue to be of support to small businesses. We supported the government's initial company tax cuts for companies with a turnover of up to $50 million. We copped a lot of criticism for supporting that tax but we stand by that decision. We were accused of giving big multinational companies a tax cut at the expense of funding schools and hospitals. I would like to remind the chamber, and those listening to this debate, what sort of companies we thought would benefit from that tax cut. There was Credit Union SA, which is under the $50 million threshold; Barossa Fine Foods, a smallgoods maker located in Adelaide: Clean Seas Tuna, a commercial producer of kingfish; Golden North Ice Cream, between $10 and 50 million, which is a key employer in the country town Laura in the mid-north; and Robern Menz, a confectionary manufacturer, which is between $10 million and $50 million. So there was a range of companies that we supported. We've given these small and medium enterprises a tax cut. The interesting thing is that the government has not provided any data. We were prepared to go along with that—we were prepared to support it. But there's no data showing that that's actually flowed through to increased investment. There's no data showing us that we have increased pay to the workers who work for these companies. Nonetheless, we were happy to support that particular change. However, we're not prepared to pass a tax cut that will benefit many big multinational companies and their shareholder: companies like BP, Caltex, IBM, Google and Uber all stand to benefit from this bill.

It was pointed out by the Australia Institute that Australia's system of dividend imputation means Australian shareholders will not benefit from reductions in the company tax rate. Australian shareholders would notice any increase in company after-tax profit being matched by a loss in franking credits attached to their dividends. The government would be giving with one hand and taking back with the other. However, foreign owners cannot use franking credits, so for them there is an unambiguous benefit from an Australian tax cut, and that's probably why these multinational companies are pushing for it. It is clear that further company tax rates will be more beneficial for these foreign companies. At this point in time NXT believes its support for tax cuts for companies with turnover of up to $50 million strikes the right balance. Before we even consider supporting further company tax cuts, we want to see clear evidence that the initial tax cut we supported has had a positive effect on the economy. The government may point to the creation of 403,000 new jobs in the year to December 2017 as evidence, but most of the rise in employment growth in 2017 was an increase in the number of women employed in the health sector, with the NDIS by far the largest employer—hardly a direct result of corporate tax cuts.

In the United States, President Trump promised that his tax cuts would encourage companies to invest in factories, workers and wages, setting off a spending spree that would reinvigorate the American economy, but this is not the case. TheNew York Times stated in an article published on 26 February this year:

Companies have announced plans for some of those investments. But so far, companies are using much of the money for something with a more narrow benefit: buying their own shares.

Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies' stock. A company purchasing its own shares is a time-tested way to bolster its stock price.

But the purchases can come at the expense of investments in things like hiring, research and development and building new plants—the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans.

There is no evidence these large corporate tax cuts are matching President Trump's rhetoric, and we've been presented with no data to give us confidence that the rhetoric spruiked by Minister Cormann would be substantiated. The case for further company tax cuts has not been made, and we cannot support the legislation currently before the chamber.