Business mood rosy, consumers just moody

By , 17/12/2018 16:21

Malcolm Turnbull is pushing ahead with plans for a cut in the corporate tax rate to 25 per cent.The Turnbull government’s company tax cut plan may stumble if and when it is voted on in the Senate but the prime minister isn’t going to give up on it, even if that means taking it to the next federal election.

Malcolm Turnbull confirmed this week the government remains committed to a reduction in the corporate tax rate to 25 per cent from 30 per cent.

“Do you know we’re now the equal highest company tax rate in the OECD? How do you compete for investment on that basis?” he argued on ABC TV’s 7.30.

The 10-year enterprise tax plan is listed to be debated in the Senate next Wednesday.

The government needs the support of the crossbench to get the legislation across the line with Labor and the Greens against the tax cuts, but the Nick Xenophon Team and One Nation have indicated they too oppose the reductions.

Business groups like the Business Council of and the n Chamber of Commerce and Industry continue to argue the case for the cut faced with ever reducing taxes around the world, notably in the US where President Donald Trump has slashed the rate to 21 per cent.

Yet, another survey this week found more than half of ns are against the reduction, instead calling for an increase in the Newstart allowance or better-regulated energy prices to assist with the cost of living.

As for the businesses themselves, it’s hard to argue they are up in arms fearing they won’t get a tax cut given the results of a spread of surveys this week.

The highly regarded National Bank survey showed business conditions in February were at their highest in at least 21 years and while confidence eased slightly, this was put down to global financial market turbulence early in the month.

At the same time, the ACCI-Westpac quarterly industrial trends survey – ‘s longest running business survey dating back to 1966 – showed the manufacturing sector continues to expand in the first three months of the year with expectations this strength will be sustained.

Not to be left out, the Westpac-Melbourne Institute small and medium-sized business survey – for which many respondents would already be enjoying the first part of the government’s tax plan – showed confidence remaining positive for a third consecutive month.

This apparent upbeat mood comes at a time of the strongest global growth in six years – music to the ears of ‘s commodity exporters.

Furthermore, the Organisation for Economic Co-operation and Development upgraded its global growth forecast to just shy of four per cent for both this year and next after an estimated 3.7 per cent in 2017. This would be the strongest outcome since 2011.

Backing the n government’s case for a business tax cut, the OECD’s upward revision partly reflected the US tax reductions, along with Trump’s public spending increases since the Paris-based institution’s previous forecast in November.

A separate report by consultants Deloitte expects Asia will again lead the charge in the growth stakes in 2018.

“That’s good news for and ns,” Deloitte Access Economics lead partner Stephen Smith says.

But two consumer confidence surveys suggest ns aren’t necessarily getting too fired up about this buoyant outlook.

The weekly ANZ-Roy Morgan confidence index dropped 2.5 per cent after last week’s n growth figures showed the economy had its worst performance in over a year, which dragged the annual rate down to just 2.4 per cent.

And while the monthly Westpac-MI sentiment index rose 0.2 per cent in March, that barely put a dent in the 2.3 per cent drop last month that was associated with a wave volatility in global share markets.

Consumer confidence is a pointer to future retail spending.

But, as the OECD points out, while stronger world growth has been accompanied by solid job creation, wage growth generally remains weak.

As the government frequently argues in pursuit of its company tax cut, wages can only grow if businesses are profitable.

Given the risk to the company tax laws, it’s just as well Turnbull is also sticking to his promise of providing personal income tax cuts in the May budget.

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