Date posted: 12/03/2018 5 min read

Contextualising Ken Henry: Adding social purpose to the tax cut debate

In brief

  • Community views on the proposed corporate tax cut are mixed
  • A reduction in the company tax rate could be seen more favourably if combined with social welfare projects
  • A range of possible strategies could make corporate tax cuts more acceptable to the electorate

It’s been a tough time for supporters of a reduction in Australia’s company tax rate.

Appeals to keep Australia globally competitive have been countered by a chorus of disbelieving voices, and in voter land, there are early signs that company tax will figure in marginal seat campaigning.

In Parliament, 38 Senate votes are blocking the company tax cut Bill in a 76-seat chamber, and there’s now talk the Coalition will look at new tactics, like linking the Bill to Budget-night personal tax cuts.

Dr Ken Henry, who Chairs the Board at National Australia Bank, recently drew together corporate social purpose and tax reform, saying, “We in business should not expect to be taken seriously in tax reform debates until we demonstrate a serious commitment to a purpose that improves the wellbeing of Australians.”

In a speech several days later, Shadow Treasurer Chris Bowen didn’t pick up on Dr Henry’s cue, preferring instead to focus mainly on Labor’s tax policies targeting wealthy individuals.

In tax circles at least, an obvious question is emerging for the presumptive Treasurer if Labor wins the next election. What will it take to convince Labor to embrace a more globally competitive company tax system?  And for the Coalition, how can it garner more community (voter) support?

I think there will be at least two triggers, one obvious, the other less so:

1. The Budget deficit must be under control

Mr Bowen’s previous support for company tax rate reform is often quoted. The difficult decision he must make if he becomes Treasurer is how long he delays cutting, conscious not just of the Budget impact, but also the risk of Australia slipping behind its global competitors.

2. Corporate Australia may need to “earn” a tax cut

This is where I think Ken Henry’s point about demonstrating a social purpose becomes relevant.

NAB’s involvement in the Australian National Outlook Project, and the Good Shepherd Microfinance loan product for low-income earners are both undoubtedly good works. But most public companies could point to such community-minded projects.

I think government advisers might have something more expansive in mind. Something very tangible which voters can relate to.

For example, could a tax cut be made contingent on a commitment to:

  • Review current offshoring arrangements and repatriate jobs  
  • An activist industry strategy which includes (for example) re-skilling workers displaced by technology change            
  • Restraints on executive bonuses and de-linking company tax cuts from determining whether KPIs have been met   
  • Even more anti-tax avoidance and transparency measures.

This level of government intervention poses many challenges and I appreciate there are limits.

However, the elephant in the room in any discussion on company tax is the future of dividend imputation. Some suggest our politicians tackle this but I suspect unravelling such a well-entrenched, popular tax policy is a bridge too far. Hell hath no fury like a retiree, SMSF or superannuation fund manager deprived of a franking tax offset.

Is it time to get specific and start talking about a Tax Accord with big business as the next stage in the company tax reduction debate? The major political parties have about a year left before the next Federal election to think about it.

Adding social purpose to the tax debate

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