Donald Trump: Australia will be swept up in the fallout

Donald Trump: Australia will be swept up in the fallout


While the world digests the implications of a Trump administration, Boral’s American chief executive Mike Kane has delivered a clear warning on one of the main potential threats for Australia.
In his interview with the Australian on the weekend, Kane said it was not the prospect of a trade war with China which worried him but the prospect of a big cut in the corporate tax rate in the US which could see money flowing out of Australia.
Candidate Trump talked about cutting the US corporate tax rate, which up to 35 per cent marginal rate at a federal level, to 15 per cent.
If he actually delivers on this, or somewhere significantly lower than Australia’s current 30 per cent, Kane warns that Australia could find itself at a competitive disadvantage if it cant follow suit.

As Kane says, the UK has already set the ball rolling with Prime Minister Theresa May’s talk about a corporate tax rate cut from the current 20 per cent.

As she prepares Britain to exit the European Union, May is signalling that she could help British business cope by cutting the rate to the lowest in Europe which could mean down to 15 per cent or lower.
The Business Council of Australia has been agitating for a cut in the corporate tax rate in Australia for some time with an eye on competitive global trends.
Prime Minister Turnbull had promised to cut the Australian rate from 30 to 25 per cent over a ten year period but even that modest policy has been blocked in the Senate.
The corporate tax situation in Australia, for local investors at least, is more favourable given Australia’s dividend imputation system which gives investors a tax break for the amount of Australian tax companies have paid.
And Australia’s ballooning federal deficit makes any corporate tax rate cut proposal, such as that put forward by Turnbull, even harder.
But in the end foreign capital will flow to where it sees the best after tax return and even Australian business leaders will have to make their own decisions on where to allocate capital.
As Kane says, the US has a big economy and its government can sustain a sizeable deficit but Australia’s fiscal situation is more challenging.
But as Kane says, if Trump moves quickly to cut the US corporate rate, generating a momentum which other major Western nations to follow, Australia will be under pressure to follow or risk having investment diverted overseas.
In his interview with the Australian, Kane — one of the best informed Australian business leaders on the mood in the US — urges people to look beyond Trump’s rhetoric to see how he negotiates deals.
At the moment the world only has Trump’s rhetoric to deal with but it will soon find out.
As Kane says, the 70 year old Trump does not have time to waste as he will be under pressure to deliver on some of the bold promises he has made to ordinary Americans to stimulate the US economy.
Trump will make his own potentially bold changes in the US whether other countries are ready for them or not.
In the end, Australia will be swept up in the fallout from a Trump administration whether it likes it or not.

http://www.theaustralian.com.au/bus...t/news-story/48f4ed413e949d33294c4d44022507bb