What Malcolm Turnbull’s plan for the future actually means

From 1 July 2016, businesses with annual turnover less than $10 million will have a company tax rate of 27.5 per cent. The company tax rate will be progressively lowered to 25 per cent by 2026-27 for all companies. The current rate is 30%.

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Malcolm Turnbull is spruiking this as as a financial plan for jobs and growth. But this assertion needs some examination.

The figures I have used are relatively old (but the most up-to-date I could find) but they give a good indication of the dimension of the benefit that Turnbull’s grand plan will deliver. It’s not much.

The first important point is that the vast bulk of Australian businesses that will benefit from this tax cut are quite small.

According to ABS figures roughly 2 million Australian businesses turn over less than $2 million a year.

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Source ABS

This sector pays 11% of the $76b in company taxes that is collected annually.

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Source: ATO, Taxation Statistics 2009-10.

That’s roughly $8.3b paid by 2 million companies. That works out at $4180 year in company tax on average.

A 3% cut on that average tax is $125 a year. That’s $10 a month. Hardly a growth stimulus.

Turnbull suggests that this is going to encourage business confidence and promote investment.

If this is trickle-down economics, it’s less trickle than the cup of filtered coffee that the business owner will be able to afford once every two weeks.

Malcolm Turnbull  does not have a plan for the future. He has a poorly thought through set of tax cuts that will provide minimum benefit at a fairly high cost of the Australian taxpayer.

There is an excellent analysis of this policy the  economics editor of The Age, Peter Martin  that looks these costs.

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