Company tax cut is mostly symbolic

Contributed by Joe Montero

Xenophon and his team joined with the Turnbull government to get through tax cuts to companies with a turnover up to $50 million.

But it was not really a victory. The aim had always been to underwrite a significant official tax break for the top end. Turnbull has failed to deliver this and will no doubt suffer the wrath of his corporate backers.

The final deal was a face saving exercise.

No doubt the push will be on to leverage this to extend the cut upwards. This is the new battleground.

There is a good argument for relief of small and even medium businesses that are doing it hard in the present economic circumstances. This would be better achieved by taking away the cost of administering the GST and a range of other impositions that raise the cost of operating the business. Access to interest free capital could be provided for special circumstances.Failure to do these things suggests that the Turnbull government is not motivated, by the desire to protect small business.

And it would have been better is Xenophon had held out for the $10 million turnover limit.

When the dust settles, the debate over the size of the company tax is not really about how much companies pay. The existence of the tax serves much less as a revenue raiser than it does to legitimise the idea that the corporate world should share in the cost of running government.

Hardly anyone paid the 30 percent in the Act.  Hardly anyone will pay the 25 percent. Company law allows for the business to be set up as a separate legal “person”.  It’s performance in terms of profit, is not the same thing as the income that goes to the owner. Using this, a range of offsets, money routes and business structures can be used to pull down the nominal rate. If on paper, the company is not making money (shows a negative net profit). no tax is paid. This is why very few companies ever pay anywhere near the percentage stated in the act. Lowering it to 25 percent will not change this.

The only effective way to impose payment of company tax is to outlaw some of the offsets,  impose the tax  before certain write-offs, or  tax  turnover.

The attack on company tax is designed not to avoid paying tax, but to de-legitimise the idea of corporate contribution to the running of government. The message is, companies should not be paying tax and the tax avoidance industry is justified.

One thing the champions of corporate tax cuts forget to mention is that, especially at the top end, doing business has become incredibly dependent on government handouts in many forms. From the provision of energy, transport and other infrastructure, to the training of the workforce and the guarantee of a profit margin in public/private partnerships, to generous cash handouts.

When the wage earner is forced to foot an ever rising  bill for corporate welfare and tax avoidance becomes even more pronounced, dissatisfaction over the unfairness of it all must grow. The demand for justice will grow along with it.

 

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