The Turnbull government is hell-bent on delivering company tax cuts over the next decade. The cost to the budget of these cuts is about $50 billion when fully implemented.
With the budget still in deficit and the surpluses into the 2020’s rice paper thin at best, the money to cover the cost of these tax cuts will have to be borrowed by the government. In other words, there will be a tub-thumping $50 billion of extra government debt once these company tax cuts are in place.
If we work on the reasonably conservative assumption that the average interest rate paid by the government on the money borrowed to fund these lower company tax rates is 2.5 per cent, there will be an additional $1.25 billion of interest to be paid each and every year in perpetuity to cover this cost.
That’s interest only.
That’s $100 million a month in interest, just to fund those company tax cuts. $25 million a week, every week forever, just on interest for this one promise.
For those who reckon interest rate will move higher sometime over the next few years, plug in an interest rate of 4 per cent to the borrowing cost and that’s $2 billion a year in government interest payments just to cover the cost of the lower company tax rate.
It is little wonder the credit ratings agencies are having kittens when they look at the budget outlook.