Trump effect and Aussie tax cuts


James Riley
Editorial Director

The Australian Government is under pressure to extend existing tax cuts to include all businesses after Donald Trump announced sweeping changes to the US tax system, which included a plan to lower corporate tax to 20 per cent.

Treasurer Scott Morrison said Mr Trump had “laid down the challenge” to Australia to do the same, saying a lower tax environment for businesses to invest “is good for jobs, it’s good for investment”.

The federal government is pushing to get the remainder of its enterprise tax plan legislated, which would extend 27.5 per cent tax rate to companies with a turnover of up to $50 million in 2018-2019. Since March, this tax rate has only applied to businesses with annual turnovers of less than $25 million.

Scott Morrison: Donald Trump’s tax cut plan put pressure on Australia to follow

The enterprise tax plan includes proposals to eventually increase the threshold for the 27.5 per cent rate to be raised to $100 million in 2019-20, and then incrementally to all businesses by 2023-24. The Coalition wants rates cut further to 25 per cent for all businesses by 2026-27.

“Australia, the Australian economy and the Australian jobs that depend on that economy need more investment into the future,” Mr Morrison said.

“That investment is driven by a competitive tax system. So, the US has laid down the challenge, just like the French Government has, just like we have already seen in our own region in places like Singapore and the UK.”

He says this is one of the main reasons why Australian small to medium businesses have been so successful recently. This together with enabling small to medium businesses to instantly write-off their asset purchases of up to $20,000.

“All of these things are equipping business. That is why we have seen a lift in non-mining investment for this year. It is up to 5 per cent expected on CAPEX this year,” Mr Morrison told InnovationAus.com.

“That is reversing what was a -2 per cent figure previously. So, these things are turning around,” he said.

“We are seeing the lift in the economy starting to come through, but there are better days ahead and we are making the right choices to secure those better days.”

But for those that have supposedly benefited from the tax cuts, it’s not a matter of whether the tax have helped them or not, it’s rather how this would affect them once other businesses get the chance to take advantage of it as well.

“If we’re going to spend public money to encourage business growth and new job creation, we should do it in a targeted, high-impact way,” advocacy group StartupAus chief executive Alex McCauley said.

“That means building a platform for the next generation of world-class businesses to grow up in Australia. Cutting corporate tax across the board is a ‘blunt instrument’ approach,” he said.

“It doesn’t help young pre-profit businesses, and it’s enormously expensive. If we’re smart about how we use policy levers, we can do much better than get a head start in the race to the bottom.”

Mr Morrison has slammed Labor’s “reckless refusal” to support the tax cuts, describing it as “tantamount to economic sabotage”.

“So we had a previous socialist government in France that thought company tax cuts were such a good idea, they legislated them. Now we have the Chinese Government making the same noises,” he told the Business Council of Australia.

“And here is Bill Shorten, appearing to the left of both of them, when it comes to cutting company tax. This is Chairman Bill’s Great Leap Backwards.”

Shadow Treasurer Chris Bowen hit back during an interview with RN Breakfast, saying the government needed to get its priorities in order before such tax cuts happen.

“The Treasurer lectures people about the need for Budget repair and the need for low and middle income earners to make sacrifices,” Mr Bowen said.

“We’ve got a $65 billion dollar hit to the Budget bottom line over the decade which is his policy for a corporate tax cut. We need to be reviewing our tax policies when and if circumstances allow it.

“You can believe in Budget repair or you can believe in a big corporate tax cut, you can’t believe in both,” he said.

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