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Labor Says Benefits of Tax Cuts Miniscule

On the ABC’s ‘Insiders’ programme Sunday morning, Barrie Cassidy asked Scott Morrison what the contribution to economic growth would be from the tax cuts for companies with turnovers up to $50 million.

The Treasurer declined to answer.

Shadow Treasurer Chris Bowen could hardly wait to tell the media that the reason no answer was given was because “you would need a microscope to find the benefits.”

This may be no more than sour grapes but the government will be hoping that the economic indicators change for the better before the next election.

The Treasurer may have half an inkling that this is the case because, as he told Barrie Cassidy, he hadn’t given up on the prospect of securing the passage of the rest of the ten year business tax

cuts through the Parliament, even before the next election.

On Friday the Senate passed legislation for the first stage of the ten year tax plan which provides for company tax reductions from 30% to 27.5% over the next three years.

The full tax plan provides for a tax reduction to 25% for all companies over ten years.

Treasurer Morrison said that he would present the rest of the plan to the Senate when it believed the government had the numbers to pass it.

Mr Morrison would not say what the impact of the measures passed on Friday would be.

“We are committed to getting the full dividend of the full plan,” he said.

“It just goes to show that this government’s slogan of jobs and growth is just that.”

Business Council of Australia chief executive Jennifer Westacott is “pretty confident” the government will eventually deliver the full tax cut to all businesses.

“This is quite a big change. Three months ago people were writing this off, not even for $10 million,” she told Sky News.

However she warned that there were dangers in having a two tier tax system because larger business might start splitting their firms up in order to gain tax advantages. She said that this could have an impact on expansion plans and employment.

The United Kingdom had a two tier tax system and very quickly moved to equalise taxes across the board.

Academic commentators have been dubious about the claim that a cut in company tax will lead to an increase in employment and growth as the government claims.

There is an acknowledgement that many business owners are likely to use the additional cash flow to invest in capital that will lead to increases in productivity and eventually higher wages but there is a reluctance to endorse the argument that businesses will hire more workers.

Most economists are of the view that the big employment gains are likely to flow from tax cuts to big companies because they will lead to substantial investment that will increase the demand for labour.

This was confirmed by BHP Billiton’s Chief Financial Officer, Peter Beavon, at a recent ‘Financial Review’ conference where he said that BHP had $25 billion worth of options in which it could invest over the next ten years if the taxation rate was competitive with other developed countries.

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