18 March 2016
Morrison to cut company taxes: Personal income taxes to wait years
Salary earners will have to wait some years for an income tax cut after Treasurer Scott Morrison confirmed on Thursday that company tax cuts will be his priority in the federal budget.
After indicating on Tuesday that the government had ditched plans for the income tax cuts it has been pledging for several months, Mr Morrison told Parliament the best way to fund income tax cuts was through economic growth. And the best way to drive economic growth was by reducing the 30 per cent company tax rate.
"We understand the burdens faced by people who are paying higher and higher rates of income tax. We understand that and we understand the best way to deal with that … [is to] grow the economy so you can grow revenues to support those changes," he said.
"That's the way you do it and that's what this government is seeking to do. We'll focus our changes on things that will drive investment, as we've considered many tax measures over the course of the past six months."
Mr Morrison said the "golden rule" was to choose tax changes that would drive jobs and growth. "These are the benchmarks we set against the tax measures of this government," he said.
It was previously reported that, because of the lack of revenue options to fund a corporate tax cut, the government wants to lower the 30 per cent rate to 25 per cent or lower over a period of years. This so-called glide path would be legislated so as to provide investor confidence. Last year, Labor leader Bill Shorten made a similar proposal in his address-in-reply speech to the federal budget.
Mr Shorten suggested paring back the tax rate to 25 per cent but said bipartisan support would be needed because it would have to happen over the life of several parliaments. He was attacked by the Abbott government for making an unaffordable "promise".
Glide path proposal
The glide path proposal was recently endorsed by the Business Council of Australia in a tax paper after conceding that raising the rate or base of the GST to fund tax cuts was dead for at least a decade.
The Business Council proposed phasing down the corporate tax rate to 25 per cent over five years to 2020 and be legislated "to provide investors with confidence to invest, while also providing an early signal to help lock in future growth".
It claimed the reduction would boost the economy by at least 0.5 per cent, or $9 billion on today's dollars. The big-business lobby group then called for the tax rate to be dropped to 22 per cent in 2025, funded by an increased GST.
The government believes the BCA was more muted than expected in its response on Thursday to plans to introduce an effects test to place limits on the misuse of market power by corporate giants because it knows a company tax cut is coming.
Mr Morrison is bearing the brunt of attacks from Labor over the personal income tax cut backdown. Shadow treasurer Chris Bowen, who said on Wednesday that Mr Morrison should reconsider his position, noted that the government's only contribution to income tax had been to increase it.
He noted the Abbott government had frozen a scheduled increase to the tax-free threshhold from $18,200 to $20,000 – which Labor supported in the Senate – and had introduced a so-called deficit levy in the shape of a 2 percentage-point increase to the top marginal tax rate for people on incomes over $180,000. Labor supported that in the Senate.
Howls of protest
That tax increase, in concert with an increase to the Medicare levy to help fund the National Disability Insurance Scheme, pushed Australia's top marginal tax rate to almost 50 per cent, prompting howls of protest and admissions from the government that it had rendered the country unattractive as a place to do business. The levy is due to expire on July 1, 2017, and on Tuesday Mr Morrison reaffirmed it would not be extended. His predecessor Joe Hockey conceded last year it had been an error.
On Thursday, the Greens demanded it be made permanent, saying it was worth $4 billion in revenue over the next four years.
The Greens mooted a new 50 per cent tax bracket specifically for ultra-high-income Australians earning more than a $1 million a year.
Mr Morrison has been forced to climb down because, one by one, the options the government explored for funding tax cuts were removed for economic or political reasons.
His main push had been to look at increasing the GST rate to 15 per cent and extending the tax to water and sewerage. This would have raised about $30 billion for tax cuts but required such high compensation for low and middle-income earners that it was not deemed worth the cost of expanding the welfare system.
Mr Morrison flagged going after the excesses in negative gearing – capping the amount that could be deducted annually. The government dumped plans under pressure from the backbench and to give itself a clear line of fire against Labor's negative gearing policy.
Mr Morrison has confirmed superannuation tax concessions will be pared back in the budget but has now badged this as retirement income reform, rather than tax reform, in an indication any revenue gain would neither be large enough nor reliable enough to fund an ongoing tax cut of significance.