Australian CEOs urge a corporate tax cut to 'create more high-paying jobs'

Treasurer Scott Morrison (L) with Minister for Finance Mathias Cormann (R). Photo: Stefan Postles/Getty Images

Chief executives including Qantas boss Alan Joyce have detailed plans to reinvest, create new jobs and lift wages if the Senate agrees to lower the corporate tax rate to 25 per cent.

Treasurer Scott Morrison said on Sunday that Australia had the chance to catch up to Donald Trump’s business tax cuts, and “dramatic impacts” were already being seen by business in the United States.

Mr Joyce predicted a company tax rate reduction would give Qantas “every opportunity” to open up new routes, purchase more aircraft and employ the additional staff needed to furnish that expansion.

“It will also allow us to compete on a more level playing field as our main international competitors either have tax rates lower than ours, don’t pay tax at all or have more favourable tax depreciation regimes,” the Qantas boss said.

Chief executive of accounting software company MYOB Tim Reed said a tax cut to 25 per cent would allow him to hire at least 50 additional software developers in Australia.

“A reduction in the corporate tax rate to 25 per cent would allow us to maintain returns to shareholders while reinvesting more in our business, which in turn would allow create more, high-paying jobs,” he said.

Rod Drury, the head of another high-growth accounting software company, Xero, said a lower rate would be beneficial in several ways.

“If you take the tax costs out, there is more cash for businesses to invest and could mean investing in new staff and creating jobs, or sharing the upside with staff,” he said.

“For large companies like us it would be a mix. We’re seeing wage costs in our hot areas moving up. But on the small business side it would mean there is more cash to invest and therefore create jobs.”

The Australian businessmen made the comments as the repercussions of the Trump tax plan continue to spread. A string of companies have announced wage rises and bonuses for staff in response to the lowering of the US headline rate from 35 per cent to 21 per cent. These include Walmart, the US’s largest private employer, which is increasing its minimum pay rate from $9 to $11 an hour.

Dramatic impacts in the US

In his first media conference for 2018, Mr Morrison said Australian businesses were eager to follow those in the US in passing on the benefits of lower taxes, charging Labor with turning its back on local employers by not supporting the government’s legislation last year.

“We are already seeing the dramatic impacts in the United States of the changes to their tax rates for business in America,” he said.

“Now we have the opportunity to catch up. We had the opportunity before to get ahead and as a result of the obstruction from the Labor Party, we were unable to do that.

“The business community have been making their case to the crossbenches and to the Labor Party. The Labor Party has turned a deaf ear to the Australian businesses who are out there, wanting to get this tax monkey off their back.”

Responding to the Walmart development, Wesfarmers chief executive Rob Scott said the decision was a “good example” of how lower company taxes benefit workers. “Lowering company tax rates would improve the prospects for wage growth,” he previously told The Australian Financial Review.

Another key plank of the Trump tax plan also appears to be coming to fruition. Apple has announced it will take advantage of a one-off 15.5 per cent tax rate for companies that repatriates profits to the US. The company said it would bring back $245 billion in cash, paying $38 billion in tax.

In Australia, a tax rate of 27.5 per cent has already been applied to companies with turnover of less than $25 million. In 2018-10, that rate is being extended to businesses with turnover of less than $50 million.

Australia ‘falling off the pack on tax’

The Senate has so far refused to pass cuts for bigger companies, but the government will try again this year. Legislation is before Parliament that would apply a rate of 27 per cent to all businesses from 2024-25, followed by a drop to 26 per cent the next year and 25 per cent in 2026-27.

Rio Tinto managing director for Australia, Joanne Farrell, said over the past 15 years Australia had gone from having the 14th highest tax rate in the OECD to the sixth highest.

“For a capital-dependent, medium-sized economy like Australia, falling off the pack on tax greatly impacts investment and growth,” she said.

“In a sector like mining, if you miss an investment window, aligned to growth cycles in Asia for example, you miss it. Scarce capital gets allocated. Once allocated, it doesn’t come back.

“A lower corporate tax rate in Australia would improve the project economics for potential future investments and would assist these projects to compete for scarce capital.”

MYOB’s 2016 profit before tax was $81 million, which resulted in a tax bill of around $24 million, and an after-tax profit of $57 million. With a 25 per cent tax rate, MYOB could have delivered the same result to shareholders on a pre-tax profit of $76 million, Mr Reed said. The $5 million gap could have been reinvested back into the business.

“With a proven track record for reinvestment for growth, it would be consistent with MYOB’s current investment behaviour that 100 per cent of this tax saving would be used to fund additional investment,” Mr Reed said.

“In effect this would mean hiring approximately 50 more software developers in Australia, which would have delivered the benefits noted above to our clients, as well as supporting the tertiary education sector in Australia.

“It is worth noting that based on current growth rates, by the time the proposed corporate tax thresholds and rates under the Enterprise Tax Plan for a business the size of MYOB come into effect, the benefit and reinvestment noted above would likely more than double.

Direct link to increased employment

Mr Joyce said Qantas told the market about $3 billion in capital expenditure in aggregate over FY18 and FY19.

“A reduction in the corporate tax rate would directly increase our free cash flow and therefore increase the amount of surplus capital identified under our financial framework,” he said.

“Increased investment by Qantas Group for growth has the potential to open up more routes and directly result in increased employment.

“Likewise, investment in innovation within the Qantas Group creates opportunities for employment growth in emerging areas of digital innovation and data analytics.”

Qantas had already committed to the purchase of eight B789 planes. These will be used on routes such as Perth-London, which is alone estimated to inject an additional $140 million per year in additional GDP and 356 full-time employees.

“In addition to the delivery of these aircraft, Qantas has 45 options and purchase rights for the 787 and tax concessions would provide Qantas with an improved opportunity to take these options and purchase rights.

“At Qantas, our investments are long dated. Tax certainty and reduced impost helps reduce the risk around future cashflows which in turn supports the case for reinvestment which given the multiplier effect throughout the Australian economy is good for Australia.

Australia at competitive disadvantage

Mr Reed said the MYOB was in competition with software companies elsewhere in the world, including the US. “As their tax rates are lowered we will be at a competitive disadvantage if the Australian government does not act to lower company taxes,” he said.

AMP chief executive Craig Meller said: “On a macro basis, there’s strong merit in the view that reducing corporate taxes would lead to an uplift in investment and boost the economy.”

This article first appeared at the AFR.com. See the original here.

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