View from The Hill

View from The Hill

Company tax compromise is limited but works for both Turnbull and Xenophon

The Nick Xenophon Team had been dug in for a long time behind backing cuts for businesses with turnovers up to $10 million. Mick Tsikas/AAP

The government’s company tax deal with Nick Xenophon has given Malcolm Turnbull something to spin between now and the May budget. It’s much less than the government’s A$48 billion plan, but it’s more than had earlier seemed likely to pass.

Turnbull said after the late-Friday Senate vote – passage through the lower house is a formality in the budget session – that the agreement would give a tax cut to more than 3 million small and medium-sized businesses, employing 6.5 million workers. It fully delivered the part of the election commitment applying to this term.

Under the deal, companies with an annual turnover of up to $50 million will get a cut. Those with a turnover of less than $10 million will have their tax reduced to 27.5% this financial year. The cut for businesses with turnovers up to $25 million comes in 2017-18, and that for companies with up to $50 million turnover in 2018-19.

The cost is $5.2 billion over the next four years, and $24 billion over the medium term.

The original government package was for a phased-in reduction for all companies to 25% over a decade, with the cuts for large companies at the back end.

Turnbull on Friday recommitted to the rest of the plan, as a business chorus urged him to stick with it. The Business Council of Australia (BCA) said the plan should “remain in the budget as the only policy on the table to revive the economy”. “There is no Plan B to get the economy moving again,” the BCA said.

Despite some fiscal advantage in taking the unlegislated tax cuts out of the budget, Turnbull had already indicated a week ago they would remain. To remove them would undermine the government’s arguments about their importance for jobs and growth. What is not covered by the deal is the tax cut for big business, and that is seen as what yields the economic benefit – albeit a modest benefit years away.

The Nick Xenophon Team (NXT) had been dug in for a long time behind backing cuts for businesses with turnovers up to $10 million.

Xenophon flagged in early March that he’d be open to going beyond the $10 million, although he put it in the negative terms of a threat – saying he wanted action on energy before he talked on tax.

He’d been influenced by the strong message coming to him from businesses about the pain that high energy prices was causing them.

In pulling the NXT up to the $50 million threshold, the government was helped by the rivalry between it and Pauline Hanson’s One Nation. Both small parties have to show voters they can get results – hence Hanson’s antics on the sugar issue this week.

Hanson announced on Monday that One Nation favoured the $50 million threshold. After Friday’s vote she immediately claimed credit, saying “we led the way on tax relief for small-to-medium businesses and we did it all without horse trading”.

But Hanson’s numbers were no good to the government without Xenophon’s. And while Hanson might spurn “horse-trading”, Xenophon wants value for his three Senate votes.

He was never going to be accommodated with an energy intensity scheme, which was his initial ambit claim on Monday. Turnbull ruled a scheme out last year.

The government searched for what it could give him on energy without opening up more problems for itself. What he received is big on reviews and on recommitting to and accelerating things. He’s bought some ownership of some plans the government had.

Naturally South Australia, the NXT’s home state, was singled out for some special consideration. There’s a $110 million concessional loan for a solar-thermal plant at Port Augusta, a project to which the government was already committed.

The government has promised to help speed up consideration of a gas pipeline from the Northern Territory to Moomba in SA, accompanied by a very heavily qualified suggestion it just might be prepared to invest in infrastructure for the project.

There’s also a one-off payment of $75 for single people and $125 for couples who are on the aged pension, disability pension or parenting payment, couched as helping them with high electricity prices. This will cost the budget some $260 million – a significant sum in straitened times. The government would give no detail on when the payment would be made or where the savings for it would be found.

Labor’s Sam Dastyari told Xenophon he had been “sold a pup”. There will almost certainly be slippage with the concessions, given the vagueness. Even so, there is enough in the deal to work for him.

Once again, Finance Minister Mathias Cormann can take a bow for this outcome. Cormann has become the government’s crossbench whisperer. He enjoys the trust of this mixed bunch even if, in the words of one (not from the NXT), “he’s a bit hairy-chested about legislation by exhaustion”.