Excluding banks from company tax cuts would have saved $7.4 billion
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Excluding banks from company tax cuts would have saved $7.4 billion

A last-ditch plan to exclude the big four banks from receiving a company tax cut would save taxpayers $7.4 billion over the next decade but the idea failed to convince the Senate crossbench to deliver Prime Minister Malcolm Turnbull a much-needed political victory.

The proposal, which could have seen the billions of dollars denied to the Commonwealth Bank, NAB, ANZ and Westpac diverted to infrastructure and social services, has been shot down by Centre Alliance, One Nation and independent senators.

Finance Minister Mathias Cormann confirmed the $7.4 billion figure was what the big four banks stood to gain under the Coalition's long-standing plan to lower the tax rate for Australia's biggest businesses. That is more than 20 per cent of the entire cost of the $35.6 billion plan and underscores the goverment's desperation to pass the package as Mr Turnbull's leadership came under increasing threat.

Senator Mathias Cormann in the Senate at Parliament House.

Senator Mathias Cormann in the Senate at Parliament House.

Photo: Dominic Lorrimer

Former Home Affairs minister Peter Dutton narrowly lost a Liberal leadership ballot to Mr Turnbull on Tuesday. The contest was partly fuelled by growing anxiety over the unpopularity of the tax cuts, particularly for the big four banks in the shadow of the royal commission.

One Nation leader Pauline Hanson fuelled speculation that she had done a last-minute deal with the government by missing a key procedural vote that would have killed off the tax cuts.  It is understood Senator Hanson – who has changed her mind on the legislation four times in the past year – did not arrive in the Senate in time to vote.

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She accused the government of lying, claiming she had never received any formal amendments that would have cut out the banks from receiving a tax cut from 30 to 25 per cent.

“In a parting comment by minister Cormann, he suggested carving out the banks to secure One Nation votes, to which I said my decision was firm," she said.

Asked if the bank proposal had changed the votes of Centre Alliance, senator Rex Patrick responded "no". Independent senator Derryn Hinch gave the same reply, stating he would only support tax cuts for businesses with a turnover of up to $500 million.

Pauline Hanson in the Senate.

Pauline Hanson in the Senate.

Photo: Alex Ellinghausen.

Senator Cormann rejected Senator Hinch's proposal, warning it would create a perverse incentive for companies to stay below a turnover of $500 million that could never be corrected.

“It would be absolutely impossible for us to say to the public ‘we want you to now just support a tax cut ... just for businesses with a turnover of $500 million'," the goverment's chief negotiator said.

Without the support of both One Nation and Centre Alliance the government has no chance of passing the legislation when it is expected to come to its final vote on Wednesday.

Senator Cormann accused Labor and the crossbench of caving to short-term populism.

"I understand that business tax cuts, which can be described as a tax giveaway to the big end of town, are not politically popular, but we don't just make decisions following the lead of what is popular today," he said.

Eryk Bagshaw is an economics reporter for the Sydney Morning Herald and The Age, based in Parliament House