I rise to speak on the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017, noting at the start that one of the roles of government is to create a framework that encourages industries to invest, because when industry invests—whether it’s a small mum-and-dad business, a medium-sized business or a large international prime—it’s that investment, the risking of capital, that creates the opportunity for men and women here in Australia to have a job. More jobs, more investment and more industry, as demand goes up, are what leads to wage rises. They are what leads, with more people in work, to a tax base that enables Australia to support the things that we think are important to our quality of life, whether they be education or health or national defence. It all comes back to the government putting in place frameworks that encourage companies to invest.
Part of the coalition’s strong track record in this area over a good decade or more has been its understanding of the drivers, of how businesses see upside and downside risk. Sometimes business will invest because there’s an opportunity. In my home state of South Australia we’ve seen Arrium, with debts of $2.8 billion and 3,000-odd jobs at risk, sold to Liberty OneSteel, who decided that there was an opportunity there for them to invest. And that investment has turned around a whole community. Some 5,500 direct and indirect jobs are now going to be preserved. That new energy in the town has resulted in other companies, in areas as diverse as renewable energy and pilot training, deciding to relocate to Whyalla, because they see that the town has a future, because a company has chosen to invest. And that investment has large flow-on benefits for the economy. This was a unique circumstance of a company that was in trouble and an investor who had a good international background in the steel industry making a decision to invest. But the point is that their investment has turned around the sentiment and the economy in a town and given those people a future. It’s leading to increased demand in real estate. It’s leading to increased opportunities for work and, therefore, jobs growth et cetera.
Another area where companies choose to invest, which again comes back to frameworks that the government has set, is the defence industry in my home state of South Australia. For years people have talked about defence industry policy, but it wasn’t until we had the first principles review and the government adopted the framework where we said industry is a fundamental input to our defence capability and so we will look at long-term partnerships with industry to grow their presence in Australia, their workforce, their capability, because that underpins our defence capability—it was when that incentive was put there—that companies decided to invest. Rather than seeing significant projects go offshore, because that’s where companies said they wanted to produce them, we’ve seen companies invest, we’ve seen some companies in South Australia double the size of their workforce, we’ve seen multiple companies increase not only the size of their workforce but the number of graduates and tradesmen they’re taking on, and we’ve seen their engagement with our schools to create opportunities for young people and motivate them to study STEM, to study trades, and to get into engineering and naval architecture.
All of these opportunities come from investment by business, and government has to create the framework whereby businesses will say, ‘This is a good spot to put our capital at risk.’ Whether they’re a mum-and-dad business mortgaging their own home to run a business, or whether they’re a global conglomerate that has shareholders that it’s accountable to, people are putting capital at risk when they make an investment decision, so they will be looking either for a unique market opportunity, like Whyalla, or for a government program that provides a clear incentive, like our defence industry policy. They will be looking to make an investment decision where they will get a return, so that the mum-and-dad business can say, ‘You know what? We can grow our business, we can employ more people and we will keep our home,’ and the global player or the larger company can say, ‘We are going to deliver a better return to our shareholder.’
The issue with tax is that if a company doesn’t have a unique opportunity, or if there isn’t a specific program like the defence industry one, and they have a choice of investing that money here in Australia or somewhere offshore, and the tax regime offshore means that the capital they have placed at risk is more likely to return money for the shareholders in that company, it’s no surprise that the board will take the decision—which in many cases they are bound to do by law—to maximise the return to the shareholders. They will go to the places where the company has the chance to grow. As we’ve seen with Whyalla and the defence industry in South Australia, a growing company is an employing company that provides training opportunities, higher wages and career paths for people in the community where they are. So the government needs to provide a framework that will encourage companies to put their capital at risk here in Australia and lead to those benefits here, not in some place offshore.
I’m going to run through a number of countries overseas that have looked at this and said, ‘Yes, we need to lower our company tax rates’, because they’ve come to the same conclusion. I’ll touch on some of the academics who have looked at this. The IMF and others have studied economic behaviour around the world and have pointed to the fact that lowering company tax rates is good for the economy, in terms of stimulating economic growth, and that the benefit is greatest for people, often in low-paid jobs, in terms of employment opportunities and wage rises. I know those opposite often deride that concept, but I’d ask people listening to this debate to remember that that derision is purely opportunistic and political. When they were in government, their economic spokesperson—the now Leader of the Opposition—back in 2011 in particular, was one of the strongest advocates for lowering company tax rates for all the same reasons that the government is putting forward in this enterprise tax plan now.
What’s happening overseas? Our international competitors—Canada, Singapore, the UK, New Zealand, Norway, Israel, Japan and France—have all reduced their company tax rates. In December of last year, the US slashed their company tax rates from 35 per cent to 21 per cent—a huge change. The IMF warned that the US corporate tax cuts would cost Australia’s economy, our GDP, around one per cent and threaten the sustainability of the Australian tax system unless Australia responded. What we’re seeing here is that international bodies who are credible in the area of economics are saying that the actions by foreign countries, like the ones listed, are not a neutral thing for Australia. It’s not as though we watch and go, ‘That’s nice for them, but it doesn’t impact us.’ It does impact us. There’s actually a double hit to this, in that the actions of other countries which incentivise companies to put their capital at risk elsewhere, rather than in Australia, have a negative impact on Australia’s economy.
At the same time, the lack of decision here in Australia and the lack of support from the opposition, from the Greens and from some of the crossbench for this tax plan means that we not only have that negative impact but also miss out on the growth that the IMF, the OECD, Treasury, universities around the country and, indeed, the Labor Party when they were in government have all said will follow. We’re actually hurting Australia’s economy—and, therefore, Australia’s population—twice, because opportunities are going offshore and we’re not gaining the opportunities here. If people are concerned about who we can trust, how we can have hope and if there is a career future for our children and our grandchildren, you need to be looking to governments that will actually put in place a framework that encourages business to invest, because it is that investment that drives opportunity. The government have been consistent in our belief that, if we lower the tax burden on companies, we will see an increase in jobs.
What we’re talking about here today is the second part of a policy position that the government have had on tax. In the first part, we have seen tax relief going towards small business. The impact on our economy has been significant, with 400,000-odd jobs created in the last 12 months. Since the government was elected, over one millions jobs have been created. Unemployment is at a 25-year low. Even if you are sceptical about employment figures, how they’re calculated and the thresholds, look at them from another perspective—the fact that the number of people on welfare is at a 25-year low. That means people are moving off welfare and into employment. The majority of the jobs that have been created in that period have been full time. They have been real jobs. We see here in Australia a very practical example of the fact that tax cuts to employers mean that there will be more opportunities, more work and more hope for Australians about having a job.
In Canada, one of their tax experts, Jack Mintz, has said that repeated studies show that at least two-thirds of company tax is shifted onto labour through higher consumer prices, wage cuts and lay-offs. That lines up with our own Treasury analysis that says the burden is passed on predominantly to shareholders, consumers and employees. So you come back to this fact: if we don’t pass this package, we’re harming Australia’s economy and, therefore, the people of Australia in two key ways. The opportunity goes to those countries overseas, and our lack of opportunity here means there’s a double whammy.
The Tax Foundation in the US found that, for every $1 rise in state and local corporate tax collections, real wages fell by $2.50 five years later, and that the reverse is also true. Wages rise $2.50 for every $1 reduction in state and local tax incomes. So those opposite, the Greens and those on the crossbench who are not supporting these measures are saying that they’re supporting downward pressure on wages and they’re supporting fewer job opportunities and, therefore, less hope for people, whereas those who are supporting this package are saying: ‘Based on the facts at hand, we are supporting upward pressure on wages. We are supporting the creation of new opportunities for training, jobs and careers.’
Warwick McKibbin, a former board member of the Reserve Bank, said the gain from the enterprise tax plan set out in the budget would be about $160 billion over the 10 years of the plan. That’s economic activity that occurs. That means that there are individuals employed, and we know that the best form of welfare is a job. The flow-on effects to children and to the family dynamic of having a household where people are working are almost immeasurable in terms of the benefit to children and to society. But we’ve also got that very clear economic benefit: the $160 billion over 10 years. That means more people enter the consumer market, more people enter the real estate market and more people are employed in the retail sector. That means more tax for the government, which then goes into things like health, education and defence.
This is a framework that the government is seeking to put in place that looks at the root cause analysis—what drives growth, what drives opportunity or what undermines it? The enterprise tax plan that the government is looking to put forward is a framework that drives growth and drives opportunity. And despite what they said in 2011, when they understood the position that the government is putting forward now and, in fact, advocated for it quite strongly, those opposite are opposing it now for purely rank, political, opportunist reasons. And Australians should judge them harshly for the fact that they’re putting politics ahead of the people of Australia, in terms of opportunity.
More globally, the OECD has also argued that corporate taxes are the most harmful type of tax for economic growth and that the boost to living standards from lowering company tax would be much more significant than from other tax measures. That’s what we think, that’s what universities think, it’s what the IMF thinks, it’s what Treasury thinks, and it’s what the OECD thinks. And, as I’ve mentioned several times, it’s what the opposition used to think when they were in government. Shadow Treasurer Chris Bowen used to say:
… it’s a Labor thing to have the ambition of reducing company tax, because it promotes investment, creates jobs and drives growth.
That’s what they used to believe. I would encourage people listening to this debate and those on the crossbench to ask the question: if all the experts around the world believe it, if Labor used to believe it when they were in government, and if the evidence points to the fact that it will be good for the people of Australia in terms of creating investment, jobs and training opportunities, why would you not support it? Why would you not support a framework that will benefit the people of Australia?
Instead, what do those opposite believe now? According to Treasury modelling, the cost of Mr Shorten’s announced new taxes on the Australian economy will be $164 billion. The plan we’re putting forward would actually result in more money for the economy. The plan that those opposite are putting forward would strip even more money than that out of the economy—less economic activity, less demand in the retail sector, less demand in real estate. It would actually harm Australia.
The enterprise tax plan is a critical step for Australia as we seek to move away from the years of the mining boom, as we seek to grow opportunities in Australia off the back of things like our investment in defence industries—that framework we’ve created to encourage companies to invest here—and as we look at things like the National Space Agency, to encourage Australian companies to be able to step up and take a larger share of one of the fastest areas of high-tech growth, and therefore employment opportunities, in the world. Why do we think companies would come here to do that work if they can go somewhere else in the world where they will get more return for the company, which allows them to accelerate their growth and their investment in R&D and innovation? If we want things like defence industry to have spin-offs into other sectors, and if we want the Australian Space Agency to be successful, we actually need not just the primes to come here—those who build, for example, the ships or other assets—but also the R&D—the smart people and the creation of IP. We need those opportunities for young Australians, and they will only come if we have a framework that makes Australia an attractive place to invest. So we’ve sought to do that.
In May 2017, we passed laws that provided a company tax cut for companies with an aggregated turnover of up to $50 million. It’s a good start. That helps around 3.2 million businesses, employing over 6½ million workers. But we can’t stop there. In fact, even those tax cuts, and therefore those businesses, are at risk if those opposite should ever come into office. We need to also make sure that those companies have the incentive to grow. We don’t need them to perversely limit their growth because they don’t want to go into a higher tax bracket. We want those companies to grow and become successful—not just small businesses but medium and large businesses—here in Australia. And that will only come when we recognise that this is tax relief; it’s not a tax cut per se. It’s their money. They’ve put capital at risk, they’ve raised it, and we want them to continue that activity. We want them to put more capital into research and development, into training, into employing more people and into paying higher wages.
Those opposite should go back to what they believed in 2011. The Greens and the crossbench should support this plan, because this plan provides hope and a future for Australia.