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Bank chairs renew calls for tax cuts, leave Gonski in the cold

March 19, 2017

Bank chairs renew calls for tax cuts, leave Gonski in the cold

James Frost, The Australian Financial Review, 14 March 2017

Australia’s banking heavyweights have renewed calls for business tax cuts, breaking with ANZ chairman David Gonski, who last week questioned the effectiveness of the long-awaited tax relief measures.

The issue of tax cuts has become a hot-button issue among the business community on the back of promises of generous tax cuts for business from US President Donald Trump and broad reform of business tax among key trading partners.

Appearing at The Australian Financial Review’s Business Summit, ANZ chairman David Gonski appeared to deviate from the script when he said that tax cuts would be more effective for small business than for large corporates.

“I strongly believe that to just focus on corporate tax rates is, in my opinion, only part of the story. Would corporate tax rates change investment? I believe for the small to medium enterprises it could,” Mr Gonski said.

“If you ask me whether it is going to make a difference for big companies, I think things like accelerated depreciation and so on would make a bigger difference than reducing the tax rate.”

But Westpac chairman Lindsay Maxsted and former Business Council of Australia president Graham Bradley are among those who believe that the delivery of tax cuts is crucial to business, and said any move to downplay their importance in stimulating the economy is wrong.

Westpac’s Mr Maxsted on Wednesday reiterated his view that a cut to the corporate tax rate would reduce the incentives for corporates to conduct business overseas and support employment growth.

“Lowering the company tax rate is a policy imperative,” Mr Maxsted said. “If Australia is to compete globally for scarce foreign investment, it must have a competitive corporate tax rate.”

Former Business Council of Australia chairman Graham Bradley said Mr Gonski was wrong and that business tax cuts were a vital part of remaining competitive on the global stage.

“I disagree with David on this one. It’s very clear that we have to reduce our corporate tax rate across the board,” Mr Bradley said.

“The US will be significantly reducing its corporate tax rate, UK has already done so and we are uncompetitive with the many Asian countries that we compete with for capital.”

Mr Bradley, who is chairman of HSBC Australia and former managing director of Perpetual, said the government needed to think big and look to New Zealand, where former prime minister John Key has successfully reformed the tax system with a minority government.

“This is just tinkering around the edges, we need much bolder measures to remain internationally competitive,” Mr Bradley said.

Mr Bradley said that although Mr Gonski may be correct in saying that most important boost to the economy and investment would come from small to medium-sized industry, “we also depend on major capital investment initiatives from large companies”.

“The differential in the corporate tax rate will become an increasingly important part of their decision-making,” Mr Bradley said.

Outgoing Australian Bankers Association chief executive Steven Munchenberg said the right mix of taxes was important to drive economic growth and strengthen local investment.

“Reducing the company tax rate would encourage Australia’s businesses to invest, helping to boost productivity and create jobs,” Mr Munchenberg said.

“Under the Federal Government’s tax package, Australia’s largest banks would not receive a tax cut until 2023-24, and it would have a smaller impact on government revenues than other industries because of a high rate of Australian ownership and Australia’s dividend imputation system.”

Bank of Queensland CEO Jon Sutton said that although business tax cuts were welcome and would help Australia remain competitive at a global level, the government needed to be more ambitious.

“The current changes are not enough and tax reform needs to be looked at holistically to have a positive long-term impact”, Mr Sutton said.

The views of BOQ’s Mr Sutton dovetailed with a withering assessment of the Federal Government’s appetite for reform delivered by NAB chairman Ken Henry last month in in a speech to the Committee for Economic Development of Australia last month.

Mr Henry, who oversaw the last comprehensive review of the tax system, which was released in 2010, said that the eight changes were the bare minimum of reforms that need to be implemented in order for Australia to remain competitive.

These included a much lower tax rate or some other mechanism that reduces the cost of capital sourced from international markets. He also called for the removal of stamp duties on residential property, a reform of the GST and symmetrical tax treatment of interest and capital gains.