Economics of the company tax cut simply don’t stack up - Transcript, Sky News Agenda




MONDAY, 7 MAY 2018

SUBJECTS: Budget 2018-19.

KIERAN GILBERT: With me now the Shadow Assistant Treasurer Andrew Leigh. What’s your reaction to this formalising that rule? It’s put Labor in a tough position.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Kieran, you can understand why the Government switched to talking about tax-to-GDP ratios, because when they were telling the Australian people they were going to take $17 billion out of our schools and give it to the big banks, that wasn’t very popular. But frankly, it’s the same argument.

GILBERT: How is it the same argument? In the sense that you’re going to be well over that 23.9 per cent cap which just a couple of years ago Mr Bowen said was a good idea – in fact he said lower, 23.7 per cent as a cap of tax as part of the economy. As an economist, do you recognise that you can’t let that get out of control?

LEIGH: There’s no hard economics that tells you that you need to have an arbitrary tax-to-GDP ratio. We put in place the National Disability Insurance Scheme and Australians were happy to pay a bit more tax in order to create that new social support pillar. But it’s also about how you raise the revenue. The Coalition’s tax-to-GDP ratio is effectively going to be used as their excuse for not cracking down on multinational tax loopholes and giving massive handouts to banks. It’ll be their excuse for running razor thin surpluses rather than the strong budget surpluses they were promising just a couple of years ago.

GILBERT: We don’t know yet, obviously we have to wait until we see the numbers tomorrow, but from the looks of it the revenue has been coming in very strongly the numbers a lot stronger than I think many people would have anticipated. So those razor thin surpluses might not eventuate as you warn and as Mr Bowen warns.

LEIGH: But Kieran, it’s a fundamental principal of economics that you shouldn’t make permanent decisions based on temporary changes in revenue. This is one of the real problems of the Howard Government, that they locked in unsustainable long term budget decisions based on the first wave of the mining boom.

GILBERT: Give me, what’s an example here though that’s unsustainable?

LEIGH: Well, it’s not clear that the revenue change that we’ve seen over recent years is going to be continued. But rather than using it to pay down debt, the government is looking to lock in long term decisions. We need-

GILBERT: But what are the decisions that they’re locking in?

LEIGH: For example, they’re looking at trying to maintain this cap. The cap is an arbitrary notion. Labor supports taxes being as low as possible in order to fund the services we need and pay down debt. But let’s also focus on how we raise the revenue – close the multinational tax loopholes, don’t give massive handouts to the big end of town and that allows you then to fund our schools and hospitals the way Australians demand.

GILBERT: In terms of the cap though, that means that the government will then distribute the excess into tax cuts. The Treasurer has said that. You’re not going to oppose that, surely?

LEIGH: We’re certainly opposing the big business tax cut. We’re opposing the $17 billion tax cut going to big banks at a time when they’re facing a royal commission with an unprecedented revelation of scandals. People are looking at this government and wonder whether they’re seeing the same things coming out of the royal commission as most Australians are.

GILBERT: You make the judgement on tax based on the controversy out of the royal commission. Where’s the link on that? I mean, obviously culturally it’s disgusting what we’ve seen out of it, but in terms of pure economics, if you’re going to argue for tax cuts like you did only a few years ago, like Mr Bowen did, like Mr Shorten did, what has fundamentally changed?

LEIGH: Kieran, the economics of the company tax cut simply don’t stack up. We see in the government’s own figures, 0.1 per cent increase in household income in the 2030s. You look now at the United States where the promised wage rises simply aren’t eventuating. You look at the argument for the link between productivity and company taxes and it’s just not there. This is not a good way of spending Australians’ resources. It’s no way to invest in the future, to rip money out of our schools and give it to the big end of town.

GILBERT: But how come you thought, and it’s a question that’s been asked many times and we’ve discussed it on many occasions on this program, but I guess in the context where you’ve got governments around the world reducing corporate tax rates, doesn’t that change the playing field? Don’t you have to reconsider and go back to your original view, which was that company tax cuts are beneficial?

LEIGH: The argument we had in government was that you could do some rebalancing of how big business taxes were raised, close some loopholes and use that revenue to reduce the rate. But we never argued in government that you ought to rip $17 billion out of schools and give it to the big banks. That would never have been something that we would have countenanced.

GILBERT: So in terms of that $17 billion, where does that come from? How does the Labor Party fund that?

LEIGH: We fund it in part by not giving a huge handout to the top end of town. The first round beneficiaries of this tax hand out are going to be overseas shareholders, due to our dividend imputation system. So the question that Australians will face at the next election is: who would you like to support, Australians school kids or foreign shareholders?

GILBERT: And have you got enough with your envelope to increase schools, Medicare, the various other commitments like foreign aid and also reduce income tax?

LEIGH: Absolutely and that’s a tribute to Bill Shorten, Chris Bowen, Jim Chalmers and the rest of the economics team in the way we’ve made serious, sustainable decisions around the capital gains tax discount, negative gearing, family trusts. We’ve been very methodical and careful in the way in which we’ve formulated our economic policies-

GILBERT: All these increase tax, though – more than $200 billion worth of additional tax?

LEIGH: Kieran, do you really think Australians are troubled by the notion that Labor would close a multinational tax loophole that allows an overseas multibillion dollar firm to debt-shift its profits in a way that a local company can’t? I think that is fairness.

GILBERT: But that’s just one example. But what about an $8 million turnover small business that you’re not giving a tax cut to?

LEIGH: We’ll announce our position on those medium sized companies in the fullness of time. But what we’ve said is there are tax loopholes that need to be closed. One of the aspects of debt we’re not talking about is household debt, which has gone through the roof, partly as a result of the government's decisions not to close the loopholes on capital gains tax and negative gearing.

GILBERT: Andrew Leigh, as always appreciate your time. A big week.

LEIGH: Thanks very much.


Authorised by Noah Carroll ALP Canberra

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.