Senate deal secures company tax cuts to $50 million threshold – April 2017

Filed under: Economy and Finance, Tax, Politics, Australian Politics,

The Turnbull Government secured a key part of the company tax cuts which it took to the 2016 election after a compromise deal with the Nick Xenophon Team negotiated during an extended Senate sitting on Friday 31 March.

NXT leader Nick Xenophon agreed to a compromise deal which will give businesses with a turnover up to $50 million a staggered cut in the company tax rate from 30 to 27.5 per cent immediately and  to 25 per cent 2026-27.

Companies will progressively become eligible for the tax cut depending on turnover, with companies with turnovers up to $10 million paying 27.5 per cent this financial year. From July 1, companies with turnovers up to $25 million will pay 27.5 per cent and, from 2018-19, the tax rate will apply to those with $50 million annual turnovers. The rate will drop to 25 per cent in 2026-27.

In return for their agreement to the deal the Government gave NXT a number of concessions including a one-off payment of $75 for singles and $125 for couples to age and disability pensioners and parenting payment recipients; and a concessional Commonwealth loan of up to $110 million to speed up the development of a solar-thermal plant at Port Augusta.

The deal secured the NXT’s shift from their previous $10 million turnover limit  to the $50 million turnover nominated by Pauline Hanson’s One Nation. Unless NXT shifted the risk for the Government was that it would not get any of its tax cut through the Senate.

The compromise package was passed by the Senate after its sitting was extended an extra day beyond the scheduled pre-Budget end of session to allow negotiations with Senator Xenophon.

By the time the Government’s modified package was passed by the Senate the House of Representatives which had also extended its sitting into Friday, had already adjourned. But Treasurer Scott Morrison said he had been assured by the Tax Office this would not affect the commencement of the cuts.

After the passage of the legislation, Prime Minister Malcolm Turnbull said the government remained committed to implementing the rest of the plan and would try again to legislate "when we believe we can secure a majority in the Senate".

"We are committed to the whole 10-year package," he said.

The Government won the support of the remainder of the Senate cross-bench to pass the modified package.

Federal Labor has criticised the deal, which involves a swathe of energy initiatives and one-off payments to pensioners, as a "dodgy deal" that will hurt the budget bottom line. "Nick Xenophon has sold out the national best interest in return for a dodgy deal with the Liberal Party," shadow treasurer Chris Bowen said.

The Greens also accused Senator Xenophon signing up to a deal written on the back of an envelope that forgoes $25 billion of Government revenue over 10 years. They argued the money could have been spent on health care, education, or social services.

But Senator Xenophon said the deal would be welcomed by thousands of small and medium businesses across Australia and would improve the security of the energy market while lowering prices.

"We actually got a good deal for South Australians, not only for small and medium business so they will actually have a fighting chance against the big end of town, but also in terms of power prices," he said.

"We now have a whole series of measures in place that will mean more gas on the domestic market."

In addition to the pensioners’ payment and the concessional loan for the Port Agusta thermal solar plant, the Government also agreed in negotiations with Senator Xenophon to:

  • a one-off energy transition payment for recipients of the aged, disability and parenting pensions of $75 for singles and $125 for couples. The total cost to the budget of this is about $250 million
  • a promise to implement rule changes to the National Electricity Market by July 1, 2018, that will improve energy affordability and security
  • accelerated consideration of a gas pipeline from the Northern Territory to SA
  • a promise to implement relevant recommendations from an inquiry into the gas market by July 1, 2017 and ensure an increase of supply into the domestic market by direct intervention if necessary
  • to have the Productivity Commission, not the ACCC, conduct the review into electricity retailers
  • have the Climate Change Authority and Australian Energy Market Commission explore and pursue a "power affordability and reliability policy"
  • establish a review of gas retention policies, Aspects of these were already under consideration by the Government.

Senator Xenophon said he was confident the Government would not cut other social welfare programs to afford the one-off payment. "The Government can't do that because bills have to be passed by the Senate and they know what the numbers are in the Senate," he said.

"This was an important concession by the Government, this will help 3 million Australians who have been battling with energy costs."

Australian Industry Group's (AIG) head of policy Peter Burn welcomed the deal but called on the Government to ensure the tax cuts were extended to large companies.

The Business Council of Australia, whose members will not benefit from $50 million threshold, urged Mr Turnbull to keep fighting for the rest of the plan. "We welcome this historic step towards rebooting Australia's international competitiveness and prosperity," said BCA chief executive Jennifer Westacott.

"It is now imperative that Parliament continue negotiating the full passage of the Enterprise Tax Plan, which should remain in the budget as the only policy on the table to revive the economy with better jobs and higher incomes. There is no Plan B to get the economy moving again."

The business tax cuts will cost the budget $5.2bn over four years and $24bn over the medium term. But the cost represents a saving to government on the current budget, given the original 2016 corporate tax cut package was to cost close to $50bn.

Malcolm Turnbull, treasurer Scott Morrison and finance minister Mathias Cormann appeared in a joint media conference at 7pm on Friday to hail the changes as a “great day for Australian workers and Australian businesses”.

Senator Cormann promised the arrangements for the pension payments would be made in May’s budget. “The pension payment is a firm commitment that we have made,” he said.

Senator Hinch said he agreed with a $50 million turnover cap because businesses like the fifth-generation family engineering company Furphys would not get the tax cut if the cap was at $10 million. Senator Jacqui Lambie argued that companies – including multinationals – did not need any more help with tax cuts and the big four banks would receive $7.4bn in revenue if the Coalition’s package went through.

Friday's deal will require Labor to rethink its policies on higher education and Medicare as it had already budgeted to spend about $35 billion of the $48 billion.

Mr Morrison said the advice he received from the ATO was that “that it was not necessary for the House of Representatives to remain in order for them to implement any changes that would be determined by the Senate in relation to the Enterprise Tax Plan. This is a fairly standard procedure, it is often done, usually in terms of personal income tax cuts, where there is bipartisan support and the tax office is able to go about their business of putting those arrangements in place.

“So, any amendments that are passed in the Senate, the advice says, ‘And the Treasurer makes announcements saying the Government will support those amendments to become law that will allow them to anticipate the rate cuts to become law. In accordance with standard practice, the law changes that are anticipated but not yet enacted, they would update their new legislation web page to indicate that fact, and that they would be anticipating changes for instalment purposes,’ as per the next dot point, as they advise ‘they would ensure,’ that is the ATO, ‘that the tax professionals are also advised of the ATO's anticipation.’”

“So, this would lead to final quarter adjustments for June 2017. The upshot of all of that is that any arrangements completed by the Senate would be able to be acted upon by the ATO, following a statement by me as Treasurer, that the Government would be supporting those amendments.”

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