The essential services that Australians rely on.
The quality of our schools and hospitals. Medicare, the PBS and our disability services.
Infrastructure that is critical to bust congestion, boost the liveability of our cities and better connect our regions.
All reliant upon, all paid for, all guaranteed by a stronger economy.
This principle was central to the Budget I delivered in May; an acknowledgement of the undeniable link between the strength of our economy and the ability to deliver high quality and reliable services.
And it is the theme of this year’s event, Building Australia’s economic and social resilience.
Without putting in place the right economic fundamentals, the task of building social resilience means you’re playing uphill and into the wind.
More than half the Commonwealth Budget is dedicated to building social resilience: record funding for our schools, record funding for our hospitals and health services, a social welfare safety net to protect vulnerable Australians from being left behind.
If you take economic growth for granted, if you seek to undermine economic growth through reckless policy, or tax it within an inch of its life, you undermine your capacity to deliver the social safety net and supports that social resilience depends upon.
Without a strong economy you can’t afford employment services like the Jobactive program which assists workers to transition. You can’t afford to add lifesaving drugs to the PBS; drugs like Spinraza and breakthrough medicines to treat breast cancer like we did in this year’s budget. You can’t afford to increase the amount of in-home care placements, to give older Australians flexibility and choice in their retirement.
A stronger economy pays for all this and more.
And a stronger economy is exactly what we are beginning to see.
After a prolonged exit from the mining investment boom that dragged on the economy for five years, Australia has climbed back to the top of the advanced economy global leaderboard.
[Chart 1 - Global growth leaderboard]
Economic growth is now running at 3.1 per cent through the year, a rate that puts us ahead of the major advanced economies of the world, and above the average growth rate in the OECD and faster than every G7 economy.
We have worked through a difficult five-year period where our economy has adapted to life without the unprecedented stimulus of the mining investment boom.
Around $80 billion of mining investment was stripped from our economy in the years following the peak of the boom in 2012, and we continued to grow. Now that’s resilience.
Our economy and finances are more resilient than they have been at any time since the GFC.
- Our economy is now more broad-based in its growth. In the latest National Accounts, all major components of the economy contributed to growth in the quarter. Non-mining business investment continued its recent strength, growing by 10 per cent in the last 12 months, with eight consecutive quarters of growth. That’s the longest continuous growth since before the start of the mining investment boom.
- The budget is now forecast to return to balance in 2019-20, a year ahead of what we had previously anticipated. We have turned the corner on debt, and from this year are beginning to pay down net debt. More than $30 billion paid down in the budget forwards and $232 billion in the next decade. An improved fiscal position puts us in a much better place to be able to respond when a future shock hits, further improving the resilience of the economy.
- We have addressed the build-up of risk in the housing market through carefully calibrated macro-prudential policies and other initiatives, taking the heat out and ensuring house price movements are sustainable.
- Our businesses have been liberated to grow their operations, invest in their future and hire more Australians, energised by our legislated tax cuts for small and medium businesses with a turnover under $50 million, our instant asset write-off, the cutting of red tape for around 2.7 million small businesses.
- The doors to the world have been opened for our exporters, with new trade deals, including the Comprehensive and Progressive Agreement for Trans Pacific Partnership (TPP-11).
- And of course the resilience we are seeing in our jobs market, with record jobs growth of 412,000 in the last year, three quarters of these positions full-time, providing a significant boost to the economy, tightening the labour market and putting upward pressure on wage growth. Over 1 million jobs have been created under the Coalition Government.
Our plan for a stronger economy is working. Which is why we need to stick to the plan.
[Chart 2 - Our plan for a stronger economy]
That plan not only involves encouraging and fostering growth through the suite of positive economic policies that we have and continue to implement. But it means removing the impediments to growth; the inhibitors that hold our economy back from realising its potential.
One of the greatest of these impediments to growth is uncompetitive taxes - our taxes are too high and tax revenues are increasing once again as a share of our economy.
There must be a limit, a control, on just how much tax you are prepared to impose on the economy. That is why we have applied the tax speed limit, expressed as a 23.9 per cent share of GDP. This protects the economy and the budget from fiscal recklessness. If you are not prepared to control your taxes, you are not prepared to control your spending. That is why Labor have abandoned the notion of a tax speed limit.
Our tax system must reward effort. It must support working Australians who are trying to get ahead. It must not penalise those who do better, get a pay rise or work more hours, by asking them to pay ever-increasing rates of tax.
Our tax system must encourage our businesses to grow, invest, hire more Australians and pay them more. It must support them to compete on fairer terms with their global competitors. It must not leave them uncompetitive in a global marketplace that embraced lower company tax rates long ago.
We are making progress but are only halfway there. For the sake of jobs and the services that depend on a stronger economy, we need to finish the job.
Last week’s successful passing of our Personal Income Tax plan is a significant win for all working Australians.
We have ensured that all Australians paying tax will be better off. They will enter a decade where they will be paying less tax, and they will be rewarded for their hard work both now and into the future.
[Chart 3 - Lower, fairer, simpler - legislated]
All-inclusive and responsible. Starting with real tax relief for low to middle income earners. Dealing with bracket creep. Making the system simpler. That’s a plan, saving average wage earners thousands of dollars in the coming years.
And by completely abolishing the 37 cent tax bracket, 94 per cent of Australians will pay a top marginal tax rate of no greater than 32.5 cents in the dollar.
[Chart 4 - More Australians will face lower rates of tax]
Every extra dollar they earn, every extra hour they get, every extra shift they do, they won’t have to pay the Government more by stepping into a higher tax bracket.
All made possible by a stronger economy, and keeping our economy strong.
Labor will cut this tax relief in half.
If you are earning just over $75,000 today, you will face a higher marginal tax rate under Labor if they are elected.
In pledging to repeal stages two and three of our legislated tax cuts, Labor are telling nine million Australians, and their families, that they are taking their tax relief, worth $70 billion, away.
This is in addition to the more than $200 billion in new and higher taxes they are preparing to dump on the economy.
Our focus now shifts once again to legislating the full implementation of our Enterprise Tax Plan - extending the legislated tax cuts for businesses up to $50 million turnover, to all businesses, benefitting the nine out of ten Australian workers who work in the private sector.
You want to boost economic growth? Let businesses invest more of their earnings back into their business: buying new machinery, hiring more Australians, taking on new markets and new opportunities, and paying their workers more.
[Chart 5 - A plan for all Australian workers]
The evidence is clear, and the benefits broad.
Treasury’s economy-wide modelling suggests taking our company tax rate from 30 per cent to 25 percent would generate a sustained, permanent increase in the level of GDP of just over one per cent.
Last October, the IMF published modelling that estimated if the US, Germany and France cut corporate taxes and increased consumption taxes to pay for it, real GDP in each economy would increase by almost four per cent after 10 years.
Businesses would invest more, and profits would be shifted into economies that were reducing their tax rates, the IMF claimed.
While profound on the upside, the downside painted by the IMF was a stark warning to countries that failed to make their business tax rate more competitive. They would face a reduction in real GDP by about one per cent.
Just by inaction alone.
Australia’s uncompetitive high company tax rate is increasingly holding us back from realising stronger economic growth and jobs, and putting considerable risk on the foreign capital injections that our businesses and the wider economy need.
As the OECD have said: “corporate income taxes are the most harmful for growth as they discourage the activities of firms that are most important for growth: investment in capital and productivity improvements”.
Around 3 million Australian businesses are paying more competitive tax rates courtesy of our legislated tax cuts; businesses that employ a staggering 7 million Australians.
What we are seeking to do is extend those tax cuts to a further 6,000 businesses - those companies that have a turnover in excess of $50 million. While that may not sound like a significant number of businesses, the headcount is considerable. Around four million employees working in businesses that are still stuck paying a 30 per cent tax rate.
These are workers behind the till at the supermarket. Flight attendants guiding you to your seat. The truck driver you pass on the freeway. Labourers working on the infrastructure projects that are making your city more liveable.
Why should their prospects of a pay rise or advancement be impacted simply because the government demands more of its profits? How are they different to the 7.2 million Australians already working in businesses that pay more competitive tax rates?
Back in May, I toured a business in Rockhampton that proved the unworkability of having a split in our company tax rates, and the effect it has on wages.
Garry and Julie Coxon run a family mechanical service business in the Central Queensland city and from next week will receive their first tax cut as part our legislated Enterprise Tax Plan.
But the question is, how long will the Coxons get to keep it?
Because within just 12 months, if they keep going as well as they have been, their turnover will tick over $50 million and they will go back to paying 30 per cent tax on all their profits.
Simply by doing better in their business, they will be punished with a higher tax rate. Remember, this is not their profit, this is their turnover from what is very large and very expensive machinery.
The Coxons are not bankers in suits. They are not Facebook or Amazon executives. They run a successful radiator business in a blue shed on the outskirts of Rockie, employ 35 workers ripping the front off mining trucks and replacing the radiators with a modular variety.
But that tax relief they are about to receive, which they say will go towards more jobs and higher wages for their workers, will soon be gone. Even worse, Labor have already committed to reversing our legislated tax cuts to business, ripping $60 billion away from small and medium businesses like Coxon’s Radiator Service.
No longer an incentive to create more jobs. No longer an incentive to lift wages.
In addition to their own modelling on our Enterprise Tax Plan, Treasury also engaged two independent consultants - KPMG and Independent Economics - to provide analysis on the effects of tax reform. Both showed significant increases in investment (1.6 to 2.7 per cent) and wage growth (0.4 to 1.4 per cent).
It is also a case made by Professor of Economics at UNSW Business School, Richard Holden, who cites an empirical study by three German economists published in the flagship American Economic Review that reviewed 18,000 tax changes across 10,000 jurisdictions between 1993 and 2012.
It showed company tax cuts provided a benefit to businesses and workers in relatively equal measure.
Professor Holden noted that “cutting the Australian company tax rate from 30 per cent to 25 per cent is not just good for business and workers. It also helps redress economic inequality.’’
“The benefits to workers,’’ Professor Holden said, “tend to flow disproportionately to women, young people and the less skilled.’’
Of course, it isn’t just the larger companies and their workers that stand to benefit from more competitive tax rates. It is the army of small businesses that occupy an important place in the supply chain.
It’s the classic analogy: a rising tide lifts all boats.
The suppliers, contractors and producers - all stand to gain when big business does well and is incentivised to grow and expand.
For a company like Qantas, we are talking about a supply chain of 13,000 businesses. Boutique wineries, bakers, designers, dairies, freight companies - a microcosm of the economy, all serving the interests of one company.
When Qantas does well, they do well.
According to the Business Council of Australia, in 2015-16, trade between big businesses and small businesses was a colossal $555 billion.
Aside from the benefits to the economy and Australian workers, there are the clear risks involved in keeping our businesses anchored to what is now one of the highest tax rates in the OECD.
Other nations will simply cut our lunch.
[Chart 6 - OECD corporate tax rates]
When Australia cut its rate to 30 per cent in 2001, there were 19 OECD countries with a higher company tax rate.
Now there are only 2. And when France’s legislated company tax cut takes effect, Australia’s rate will be the second highest amongst advanced economies - just ahead of Portugal. Now Portugal have Ronaldo and are going great guns at the World Cup but when you look at the OECD economic leaderboard, Portugal is sitting near the bottom.
This will leave Australian business at a significant disadvantage compared to our competitors who are benefiting from a 19 per cent rate in the UK, a 17 per cent rate in Singapore and on average a combined federal and state rate of around 25 per cent in the US.
Our global peers have long grasped the notion of competitive corporate tax rates. They have cut their rates and they have reaped the spoils, having recognising that to keep pace in an increasingly global marketplace, their businesses needed to have a competitive edge.
And in doing so, they tipped their hat to an unassailable economic reality: competitive taxes mean more jobs. Competitive taxes mean higher wages. Competitive taxes mean more investment.
By keeping to the status quo, we risk our businesses being uncompetitive on the global stage. We risk jobs heading offshore to jurisdictions that have embraced more competitive taxes. And we risk investment bypassing Australia, as foreign companies and capital seek a better return elsewhere.
Bill Shorten talks a lot about the big end of town. His refusal to support more competitive taxes for businesses in Australia means he is for the big end of town in New York, in San Francisco, in London, in Singapore, in Tokyo, in Shanghai. Because their companies benefit from paying lower rates of tax and they are competing with companies in Australia who Bill Shorten wants to ensure pay higher rates of tax.
Perhaps the most galling part of Labor’s stubborn anti-business, anti-economy stance, is that they used to believe in this stuff. They used to support the notion that Australian businesses paying more competitive tax rates was good for the economy, and good for workers.
[Chart 7 - Historical corporate tax rate]
[Chart 8 - What Labor used to believe]
Shadow Finance Minister Jim Chalmers said in February 2016: “Australia would go well out of a lower company rate than it is right now.’’
Shadow Treasurer Chris Bowen wrote a book about it, advocating in 2013 that cutting company taxes was a “Labor thing”.
He said “reducing company tax … promotes investment, creates jobs and drives growth.’’
Bill Shorten, when Minister for Financial Services in March 2012, went as far as to belittle any listener who dared think business tax cuts were bad for the economy: “Any student of Australian business and economic history since the mid-80s knows that part of Australia’s success was derived through the reduction in the company tax rate,’’ he said. How dare they.
He went on: “We need to be able to make life easier for Australian businesses.”
“Cutting the company income tax rate increases domestic productivity and domestic investment. More capital means higher productivity and economic growth and leads to more jobs and higher wages.”
That was Bill Shorten, circa August 2011.
Even Wayne Swan used to believe in it. Whilst standing beside then PM Kevin Rudd at a press conference in May 2010, the now Labor party President said “reducing company tax will create new jobs and grow the economy right around the country to the ultimate benefit of all Australians.’’
Even former PM Julia Gillard, in March 2012 said “If you are against cutting company tax, you are against economic growth.”
They could barely agree on anything back then, but they all agreed that lower, more competitive tax rates were good for business, jobs, investment and the economy.
How can they be trusted with our economy, when they cannot hold to such a basic economic principle as this.
Finally, while we believe business tax in this country should be lower and more competitive across the board, it should also be paid.
[Chart 9 - Making multinationals pay their fair share of tax]
The Turnbull Government’s pursuit of more competitive tax rates has run in tandem with our pursuit of multinationals who were not paying their fair share of tax.
Our Multinational Anti-Avoidance Law (MAAL) is clawing back into the tax net $7 billion a year in sales from foreign companies operating in Australia.
This is in addition to the $5 billion raised through our various tax integrity measures since 2016.
In the Budget in May, we also strengthened the rules that limit interest deductibility to stop companies shifting profits out of Australia, and broadened the scope of the MAAL and the Diverted Profits Tax.
Companies avoiding tax by shifting it overseas will pay a 40 per cent penalty rate on those profits.
Not only did Labor vote against our Multinational Anti-Avoidance Law, but through its proposed changes to rent-to-build, it is advocating multinational companies receive a 50 per cent tax discount to build apartments in Australia.
Once again, Labor like to rail against the big end of town in Australia. But their record shows they are the biggest champions for the big end of town in New York, San Francisco and London.
New changes to the tax treatment of stapled structures announced in the Budget will close down a tax loophole opened up by the Rudd Government back in 2008 and tighten other concessions that gave foreign investors a leg up over Australian investors. In some cases, sovereign investors achieved tax rates of close to zero per cent on active business income.
And we are improving the integrity of the GST by making sure foreign businesses pay GST for online sales to Australians from July 1, much to the huff of the world’s richest man, Amazon’s Jeff Bezos.
This will help boost the GST funding pool that is divided between the States and Territories, which has increased by $3.2 billion in the last year.
The next big challenge is how we ensure large multinational digital, tech and new economy companies pay their fair share of tax.
As I announced in the Budget, in coming weeks I will be releasing a discussion paper on the taxation of digital companies. I will also be discussing these important matters with my G20 colleagues next month, where we are working on a multilateral approach.
While there is a clear financial gain from these tax integrity measures, they are designed primarily for one reason.
They are all geared at levelling the playing field.
So Australian business can compete with multinationals on fair terms.
As a Government we are achieving the goals of economic and social resilience by ensuring that we deliver on our plan for a stronger economy that I announced in this year’s Budget:
- Tax relief to encourage and reward working Australians,
- Backing business to invest and create more jobs,
- Guaranteeing the essential services Australians rely on,
- Keeping Australians safe, and
- Ensuring the Government continues to live within its means.
That’s our plan. The plan is working. It is enabling Australians more and more to plan for their future with confidence in an uncertain world. And it’s important that we stick to this plan, because Australia and Australians cannot afford the alternative.