TONY SMITH. Company tax cuts by any other name

The federal government might have called its company tax cuts bill by another almost Orwellian name, but semantic disguises should not fool anyone. Tax cuts are being delivered to Australian business.  

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 has passed through the Senate thanks to the support of the Xenophon ‘team’. Senator Xenophon has argued that by supporting the government on this issue, he has been able to force serious consideration of Australia’s energy crisis. This is a commendable ideal but it is possible that it is a trifle naive.

Astute observers have noted that the company tax cuts policy has two major problems. First, it is unlikely to achieve the economic benefits claimed by proponents. Secondly, in a tight budgetary atmosphere the government is likely to match a fall in revenue with spending cuts, and these will likely affect the most vulnerable members of society and less tangible policy areas such as overseas aid and the environment.

The policy process in the Turnbull Government – and its predecessor the Abbott Government – has been controversial in both substance and style. It appears as though someone floats a grand idea but it is so poorly planned that real policy formation is left to interest groups and the Senate. The company tax cuts were yet another ideologically driven policy that was under developed.

The very means of the bill’s passing is an indictment of its provisions. Senators found that the bill had so little to recommend it that it was eventually passed not because of any qualities of its own but because of the apparent merits of inducements the government offered the Xenophon party. The inducements offered in exchange for passing the legislation were in the area of energy policy and while it is a fine ideal to get the government to address Australia’s energy crisis, it is doubtful whether this has been achieved.

There are several problems with this kind of policy trading. First, there is the principle that each policy and each bill should be considered on its merits. This bill was not.

Secondly, the supposed concessions won from the government were predominantly for South Australia while the company tax cuts and their side or knock-on effects will be felt across Australia.

Thirdly, the promises made by the government were insubstantial. While specific dates were set for one report, most of the concessions were just promises. The Xenophon party has no guarantee that these promises will be kept and no avenue of redress should the energy concessions fail to materialise within the life of this government.

Reading the speech of Minister for Finance Senator Cormann (Hansard 30 March 2017) you could almost hear his hands rubbing together in glee. He announced that several measures already planned would be accelerated, including consideration of a gas pipeline from the Northern Territory to Moomba ‘by conducting a national interest and economic cost benefit analysis as a precursor to a fully fledged feasibility study’. Only the naive would accept this assurance when this government – like many predecessors – is so slow to respond to reports. Senator Cormann added the caveat, and a potential escape clause for the federal government, that the pipeline depended upon the attitude of the NT government.

If the energy policy items had sufficient merit, a responsible government would support them anyway. So exactly what it has conceded is debatable. If they do not have merit, then the government has yet again called its own integrity into question. In this case however, it may have managed to damage the integrity of the Xenophon team as well. Senator Xenophon should have noted the difficulties experienced by the Australian Democrats when they supported the Howard Government’s GST legislation.

Such ‘horse trading’ of policies is a sign of desperation and will likely produce chaos. Given that this government has had no shortage of ways of creating chaos, perhaps an even worse outcome could be further erosion of public respect for politicians. The presence of so many crossbench Senators suggests that electors trust the Senate to act as a brake on executive excess which arises from a government’s majority in the lower house. Senator Xenophon has spoken strongly and appropriately about how entitlements scandals corrode public trust in politicians. It will be interesting to see this latest compromise increases public cynicism about lack of principle in the political class.

Dr Tony Smith is a former political science academic with interests in parliament, elections and political ethics. His recent writings can be found at www.eurekastreet.com.au and www.thecud.com.au.

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2 Responses to TONY SMITH. Company tax cuts by any other name

  1. Peter Dixon says:

    another good and -perceptive article, Tony, Thank you.

  2. Mael Colium says:

    I concur completely with the contents of this article. The NXT ‘team’ has utterly lost any credibility and will quickly exit left of stage for this preposterous ‘deal’ which delivered a few dollars to pensioners while denting a huge hole in revenue. The comparison with Meg Lees Democrats is apt and I can see NXT members departing Nick in the same way Meg was left as a pariah.
    What confounds me is that the economics of trickle down have been completely discredited from academic and empirical perspectives and yet the ideology continues to be stumped up as the saviour of the economy. ECO101 expresses the view that firms invest in productivity when they expect demand for extra goods will deliver a long term return. Low interest rates which fail to prime the economic pump are a striking example of the folly of policy supported by ideology. And yet they persist!

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