Australia can’t afford tax cuts, say unions, as Coalition seals $143bn package

The Turnbull government will on Thursday steer its $143bn income tax package through the parliament after days of brinkmanship around the economic policy debate that will form the centrepiece of the next election.

The package will go to the House early after the Senate successfully amended the package on Wednesday to strip out stage three of the plan – the tax cuts for high income earners. Then it will return to the Senate and be passed in its original form, with only cursory debate, because the Centre Alliance bloc will not insist on the amendments it supported during the first run of Senate debate.

The government will bank the legislative victory on the tax package, and it has signalled it wants a resolution in the final sitting fortnight before the winter recess on its long-standing promise to cut the corporate tax rate for Australia’s biggest companies.

Anticipating the likely return of the company tax debate, new analysis prepared by the union movement warns that tax cuts in advanced economies over the last decade did not consistently lead to increased wage growth, and in some cases stagnation worsened.

The Australian Council of Trade Unions has argued the company tax cut package does not deliver promised benefits and the budget cannot afford the Coalition’s $143bn personal income tax cut package that will clear the parliament on Thursday.

In a paper to be released on Thursday, the ACTU analysed data from 2003 to 2016 in 34 OECD countries and found weak or no association between company tax cuts and wage growth.

In fact, seven countries experienced statistically significant slower wage growth despite lower taxes, compared with four that had a statistically significant relationship in the other direction.

The ACTU acknowledged the results were “as likely to be random” but demonstrated that “too many other factors are significant in determining wage growth” resulting in a “lack of relation” between headline corporate tax rates and wage rates.

Countries that experienced the largest decreases in annual wage growth despite corporate tax cuts included Norway, Canada and Finland.

In some countries, including Chile, Iceland and Hungary, wage growth increased despite increases in corporate tax over the measured period.

“It is clear that the government’s claims on wage growth and corporate tax cuts does not match the international evidence,” the ACTU paper concluded.

In March the Turnbull government fell two Senate votes short of passing the big business element of its company tax cut package – expected to cost $35bn over 10 years – after successfully cutting the rate for small and medium businesses.

The Coalition was dealt a further blow when Pauline Hanson’s One Nation opposed the package, adding two votes to the opposition’s side of the ledger despite Brian Burston exiting the party and signalling his intention to vote with the government.

The Coalition has said it will reintroduce the company tax cut bill in this fortnight’s session of parliament before it rises for the winter break on 28 June.

The Australia Institute also released further an analysis of stage three of the personal income tax cuts plan showing high-income earners in the top 20% of taxpayers would get 95% of the benefit, while three-quarters of taxpayers got no benefit at all.

The total cost of stage three to the budget when implemented in 2024-25 is $6.3bn and $42bn over the first five years of implementation.

“There is no compelling case for stage three of the income tax plan to be passed,” said Matt Grudnoff, senior economist at the Australia Institute.

“The progressive nature of Australia’s income tax system has been an important feature for decades.

“Flattening income tax reduces the tax take from high-income earners, which ultimately means either less government services or high taxes on middle and low income earners.”

The ACTU also took aim at the income tax package, arguing that the $24bn-a-year cost of the plan could fund the education of 1.9m secondary school students.

The secretary of the ACTU, Sally McManus, said Australia should not move further down the path of “entrenched inequality” by giving tax cuts to people earning 2.5 times the average wage.