While the government’s failure to get its handout to multinationals and foreign investors through the Senate yesterday is ostensibly a failure for the Coalition, it wouldn’t take much to see it as, instead, an opportunity to reset the political debate on more favourable terms.
The government insists it is almost there with Derryn Hinch and Tim Storer, apparently convinced it can gull these politically and policy-inexperienced senators into backing its Great Corporate Tax Heist. It will try again in budget week, it says. But it was dead keen to get a win this week, well in advance of the budget. While the tax handouts for larger corporations have little impact over the Forward Estimates from 2018-19 and are in any event already built into the budget figures (although not, as the government lies, “paid for”), getting the issue legislated this week would have cleared the air around the budget for the government’s expected personal income tax cuts. It would have also spared the government the embarrassment of revealing, as it will be forced to do around the budget, the escalating cost of the handouts, given an extra year of the full-blown five percentage point tax cut for big companies will be added to the decade-long cost, pushing the total cost above the current $64 billion to, likely, closer to $75-80 billion. It will have to hope Hinch and Storer don’t notice that the cost of caving in and enabling the Heist is getting bigger all the time.
The problem the tax handout represents, though, is that it significantly curbs the capacity of the government to offer personal income tax cuts to ordinary Australians without delaying the return to surplus or reducing the size of the future surplus that we need to pay off years of Labor and Liberal debt. There’s an obvious answer to the problem — abandon the non-legislated part of the tax handout to corporations, or a significant chunk of it. That won’t deliver more than a few hundred million dollars over the Forward Estimates — not enough to pay for big personal income tax cuts — but will make them affordable over the medium-term. One option would be to hold the tax rate at 27.5% instead of dropping it to 25% over 2024-26. That’s when, combined with the extension of the tax cut threshold to truly huge businesses, the cost of the handout gets truly eyewatering, going from around $3 billion a year to well over $10 billion a year in the blink of a fiscal eye. Another option would be to leave the biggest businesses out altogether — after all, isn’t the government always insisting small business is the real engine of job creation? That will save tens of billions.
It’s a particularly difficult problem now that Labor has the best part of $60 billion in additional revenue to play with from ending the dividend imputation refund rort, and has exempted the biggest whingers, nullifying the government’s pensioner scare campaign. Labor can make personal income cuts the centrepiece of its budget reply, outdoing whatever the government offers and portraying the government’s cuts as “sandwich and a milkshake” stuff that only illustrate how out of touch the Coalition is with the financial pressures on ordinary families etc etc. The rhetoric writes itself.
Making a further token effort to con Hinch and Storer and then declaring it is abandoning the cuts, or a large slab of them, will give the government a similar warchest and signal to the electorate it is refocusing on ordinary Australians, rather than pandering to big business. The Business Council will scream, and maybe some of the approximately $3 million in donations BCA members have gifted the Coalition in the last two years will no longer be forthcoming — an important consideration.
But it would move the political contest from one where the government keeps trying and failing to make a dent on Labor’s lead, to one where it has a better chance of getting voters to look afresh at its offering — if only it would remove its ideological blinkers.