Labor's assistant treasury spokesman, Andrew Leigh, has questioned the overall benefits for the economy of company tax cuts and says the ALP would not consider tax breaks for business until government revenue exceeds spending.
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In a speech to be delivered at a corporate tax summit on Wednesday that makes clear the different strategies the two major political parties intend to pursue on tax before the next election, Dr Leigh tackles head-on the Turnbull government's stated pledge to reduce corporate tax.
He says Australia cannot afford to be complacent about its corporate tax settings because "China's corporate tax rate is now at 25 per cent, and the United Kingdom is progressively lowering its rate below 20 per cent".
But Dr Leigh's speech sharpens the political divisions between the Labor and the Coalition and is, in effect, a defence of the importance of corporate tax.
"A lower corporate tax rate alone will not make Australia a strong and competitive economy. If we want to be like the world's richest countries, we need to invest in growth – just as they do," he argues, stating that Australia's corporate tax rate of 30 per cent, and 28.5 per cent for small business is not uncompetitive.
"The biggest economy in the world, the USA, has a corporate tax rate of 35 per cent. Germany, the European Union's economic powerhouse, has a rate of 29.65 per cent. Across the world's 10 largest economies, the corporate tax rate currently averages 29 per cent.
"That's why Bill Shorten and Chris Bowen have outlined Labor's long-term objective to lower Australia's small business tax rate to 25 per cent. We know this can't be done tomorrow with the deficit as it. And it can't be done while Commonwealth spending exceeds revenue by a full 1.5 per cent."
In contrast, Treasurer Scott Morrison again signalled on Tuesday the federal government was "concerned about the level of competitiveness of our tax system and corporate taxes".
He said the government would have liked to go further with the instant asset write-off it introduced in the last budget but "these are the sorts of trade-offs - whether it is in corporate taxes, personal income taxes - that you can look at to ensure that you change the tax system. It is not about increasing the tax burden; it is about having a better set of taxes."
However, Dr Leigh argues that because only 600,000 of Australia's 2.7 million small businesses pay net tax, and 72 per cent are unincorporated, "cutting the company tax rate further may not do as much to help Australia's small business as advocates from some lobby groups sometimes suggest".
The 2015-16 federal budget projects that spending will exceed revenue at least until 2018-19, and a budget surplus is not expected until the early 2020s at the earliest.
Prime Minister Malcolm Turnbull has begun a wide-ranging conversation about tax reform in the past month, with cuts to corporate tax, a rise in the GST, changes to negative gearing and a tightening of super tax breaks among the measures being discussed.
The ALP has, to date, strongly argued against any rise in the GST or a broadening in what the consumption tax applies to, while earlier this year it announced policies that would reduce superannuation tax concessions and attack multi-national tax avoidance.
