Back from leave, Fairfax’s Ross Gittins has joined the conga-line of commentators queuing up against the Coalition’s proposal to cut the company tax rate from 30% to 25% over a decade:
One thing we’ve learnt from this election campaign: whoever’s interests our business lobby groups represent, it’s not Australian shareholders…
That’s clear from their vociferous defence of Malcolm Turnbull’s hugely costly promise to cut the company tax rate from 30 to 25 per cent, even though our system of dividend imputation means local shareholders have little to gain from the cut.
Local shareholders would have the present 30 per cent rate of their “franking credits” cut back in line with the fall in the company tax rate. Something similar would affect all Aussie workers with superannuation…
And with a genuinely small business – where the owner-manager is also the chief shareholder – the business’s profits (those not taken as salary and perks) will always ultimately be taxed in the owner’s hands, meaning most of the benefit from the lower rate of company tax is lost through the equivalent cut in franking credits…
The business lobbies carry on about the company tax cut as if the loss of revenue to the budget had no opportunity cost. In truth, the gap would mean higher budget deficits (and a higher interest bill to taxpayers) unless it was covered by cuts in the provision of government benefits and services, or by higher taxes…
Point is, while local shareholders have little to gain from the company tax cut, they’ll bear their share of its cost…
Of course, the shareholders who would benefit from a lower tax are the foreign owners of Australian shares, since they receive no imputation credits to be reduced.
Well said Ross. Because of the reasons you have explained above, recent modelling from Janine Dixon from the Centre of Policy Studies at Victoria University showed that cutting company taxes would actually reduce national income – the best measure of living standards – precisely because of the transfer to overseas owners/investors:
Given foreigners would be the main beneficiaries of a company tax cut, and local residents would be made worse-off, why should we support it?
The fact is, the overwhelming majority of Australians don’t support cutting company taxes. Shame the Turnbull Government refuses to listen.
