Corporate Tax Cut Showdown Looms in Australia

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By Peter Hill

The battle over the Australia’s plan to phase in a company tax rate of 25 percent by the 2026-2027 tax year will be decided when the Senate votes on it next week.

Political wrangling and disagreement over the plan, called the Enterprise Tax Plan, has however triggered at least one senator’s resignation from his party while another flip-flopped over a deal to vote in favor of the tax cuts. The debate is an example of how challenging it is for countries to reach agreement on sweeping tax changes—and pressure to do so has been building since the U.S. cut its corporate rate.

With three senators in the Australian parliament’s upper house, the One Nation Party held the balance of power over the passage of the enterprise plan, and recently its leader, Senator Pauline Hanson, reneged on a deal with the government to vote for the tax cuts.

That was until Senator Brian Burston resigned last week from the party over Hanson’s decision. With Burston’s support for the tax cuts, the government no longer needs Hanson’s support to get them over the line.

In a statement released June 14, Burston urged Hanson and the other remaining One Nation Senator, Peter Georgiou “to honour the deal we all made with the government and pass the company tax cuts in full to help our Australian companies be internationally competitive.”

Burston emphasized that the deal made with the government was on the proviso the Enterprise Tax Plan was passed by parliament and said comments made by the government’s “key negotiator” Senator Mathias Cormann recently confirm “that the deal still stands.” Cormann is also the minister for finance.

What Is The Enterprise Tax Plan?

The Enterprise Tax Plan was originally announced by the government in May 2016, but was blocked by parliament’s upper house last year. If passed, the general corporate tax rate will fall to 25 percent, from the current 30 percent rate, by 2026-2027.

Passage of the plan would end the current two-tier system in which companies with annual turnover of less than A$50 million have had access to an initial lower rate of 27.5 percent since 2017.

From the 2024-25 financial year, all companies would have a tax rate of 27 percent, and this rate would reduce to 26 percent the following year and 25 percent in 2026-27.

In recent months, Federal Treasurer Scott Morrison and Minister for Revenue Kelly O’Dwyer have renewed their push to pass the plan. The U.S. tax cut to 21 percent from 35 percent, part of the 2017 tax act ( Pub. L. No. 115-97), is seen as a major threat to the Australian economy.

Chasing the Numbers

In a doorstop interview at parliament house on June 17, Cormann said that “everybody knows” the government has 31 senators and needs another eight votes to pass the company tax cut legislation “that is opposed by Labor and the Greens.”

Those eight votes thus have to come from the 10 senate crossbenchers, of which the One Nation Party comprised three until Burston’s resignation.

In an interview June 18, Cormann said the government has been working with the “unpredictable and confusing” Senate crossbenchers to secure support for the company tax cuts, due to be debated and voted on next week, and the three-phase personal income tax cuts announced in the May 2018 federal budget, which are set for debate this week.

Independent Senator Derryn Hinch will also support the tax cuts but only if companies earning more than A$500 million ($372 million) annually are excluded. That proposal has been rejected by the government, with Cormann labeling it “a disincentive for growth.” Other crossbenchers are reported to want broader tax reform to be examined to secure their support.

Cormann warned that “for Australia to put ourselves into a position of competitive disadvantage with a country like the United States when we rely on overseas capital to continue to develop our economy is reckless and irresponsible.”

All Or Nothing

The Labor Party has indicated its support for the first two phases of the personal income tax cuts but has balked at the third. In response, the government has said it won’t split the package.

To contact the reporter on this story: Peter Hill in Sydney at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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