Bill Shorten rolls on company tax in a brutal blow to his credibility

Getty ImagesLabor leader Bill Shorten.
  • Opposition leader Bill Shorten’s off-the-cuff announcement on Tuesday that Labor would repeal a 2.5% cut in tax for companies with a turnover under $50 million sent shockwaves through the business community and electorate.
  • Today Shorten announced a change of heart after the Labor caucus met and overturned the previous announcement.
  • Labor still opposes further reductions in company tax to 25%, but says the existing changes will stand to end uncertainty.
  • The policy shift comes ahead of July 28 by-elections, with Labor hoping to retain four key seats in WA, Qld and Tasmania.

Labor leader Bill Shorten has walked away from his plan to repeal existing reductions in company tax for businesses with a turnover between $10 million and $50 million.

On Tuesday, Shorten made the surprise announcement that he would scrap the measure if Labor won the next election, sending shockwaves of uncertainty through the business community.

The Labor leader announced the policy without consulting his shadow cabinet.

A impromptu caucus meeting was held in Sydney this morning to tackle the issue. The change of heart ends one of the more inexplicable missteps in Shorten’s five years leading Labor.

“It’s become clear in recent days after lengthy consultations with business and colleagues that any proposition to change already implemented tax rates was creating uncertainty,” he said.

“Today my colleagues and I have decided to amend our position.

“We didn’t want to cause confusion and uncertainty.”

However, it’s not a complete backdown by Labor, which pledged only to leave intact the initial 2.5% cut in company tax to 27.5% already in place for companies with a turnover of up to $50 million.

While the Turnbull government wants the company tax rate to drop to 25% by 2026-27, Labor still plans to oppose the further reductions.

Last year, the Turnbull government steered the first part of its corporate tax cut plans through the Senate, although an attempt pass cuts for businesses with turnovers above $50 million were abandoned this week when they failed to gain enough Senate crossbench support.

But the existing law gave companies with a turnover of up to $25 million a 2.5% reduction in company tax to 27.5% in FY17-18. That reduction applies to businesses under $50 million from Sunday.

The Coalition’s plan includes another reduction to 26% in FY25-26, falling to 25% the following financial year.

“We will not take the tax rate to 25%. We do not regard it as the right priority for Australia’s future,” Shorten said.

The uncertainly generated by Tuesday’s off-the-cut policy announcement threatened the ALP’s chances in next month’s by-elections, as well as at next year’s federal election, with Labor ahead in the polls.

Today Shorten said the earlier announcement wasn’t a “captain’s call”, but rather a decision of the ALP’s expenditure review committee, who now appear to have been rolled by the rest of the Labor caucus.

“While I don’t think businesses between $10 million and $50 million are small, I accept they’re not massive either,” Shorten said.

The policy change was proof that he was “not too arrogant” to listen to the views of his party colleagues and business.

“Smart politicians don’t just lead, they listen,” he said.

An estimated 20,000 businesses have turnovers of $10-50 million, employing around 1.5 million workers.

Shadow treasurer Chris Bowen attempted to explain that 72 hours ago, his leader’s comments were “reflective of thinking at that time of what the expenditure committee thought could be afforded at that time”.

Labor’s new position “respects tax cuts which have been legislated and implemented”.

“Any business which has received a tax cut has factored it in, will continue to receive it under a Labor government,” he said.

Bowen says they looked at the legislated cuts and advice this week concluded that they would cost less than originally estimated.

Shadow finance minister Jim Chalmers said it was all about the party taking “collective decisions”.

“We take responsibility for those collective decisions collectively,” he said.

While Shorten stopped short of saying his earlier announcement was a mistake, he said that with hindsight, he wished the Labor policy announced today had been the position on Tuesday.

“I tell you what, the optics of not changing your mind and not listening are far worse,” he said.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.