Australia’s big business lobby group – the Business Council of Australia (BCA) – has begun lobbying the Senate cross-bench to pass the Turnbull Government’s controversial company tax cuts, citing spurious arguments that investment in the economy will be curtailed if taxes are not lowered. From The Australian:
Business leaders are planning a new offensive to get crossbench senators to back the government’s economic agenda…
The corporate chiefs are throwing new weight behind Malcolm Turnbull’s most contentious election policy, a 10-year cut to the company tax rate, in a pitch to powerbrokers such as Pauline Hanson and Nick Xenophon to rescue the plan.
The Business Council of Australia will press for reform based on research showing company taxes paid by the country’s 12 biggest firms doubled to $20bn over the decade to 2013 but had started to flatline since then, with profits under pressure and the mining boom subsiding.
The move comes as Scott Morrison warns that commonwealth gross debt could hit $1 trillion within a decade in a “worst-case scenario” of slowing growth, slipping tax revenue and Labor opposition to spending cuts…
The BCA briefings to crossbenchers will warn that companies will not as invest as much in Australia if the tax rate stays too high… the BCA’s message is that the best way to lift growth is to give business stronger incentives to invest.
That the BCA is lobbying hard for the company tax cut is hardly a surprise, given it is big business that stands to gain the lion’s share of benefits from lower corporate taxes.
Local owners of unincorporated businesses are essentially taxed at their personal tax rate, because of Australia’s dividend imputation system. Hence, lowering the company tax rate from 30% to 25% will provide local owners and shareholders with minimal benefits, since any reduction in company taxes will be offset by a commensurate reduction in imputation credits.
By contrast, the major beneficiaries of a company tax cut are foreign owners/shareholders, since they cannot avail themselves of imputation credits. And since most big businesses have some degree of foreign ownership, it is they that reap the benefits from any company tax cut.
Former Treasurer and Prime Minister, Paul Keating, said it best when he wrote the following earlier this year:
Australia’s dividend imputation system works such that the company tax is, in effect, a withholding tax – a tax temporarily held by the Commonwealth which is returned to shareholders when their dividends are paid. So, whether the company tax is withheld by the Commonwealth at a rate of 30% or 25% is immaterial – the Commonwealth is going to return the money to shareholders anyway, regardless of the rate. But the shareholders who will receive a benefit are foreign shareholders.
For this reason, modelling from Victoria University senior research fellow, Janine Dixon, found that cutting the company tax rate would actually lower national income (GNP) and living standards:
It is also why a veritable conga-line of other commentators have questioned the Coalition’s policy, including:
- The Grattan Institute
- The Australia Institute
- Goldman Sachs
- ABC’s investigative reporter Stephen Long
- Fairfax writers Peter Martin, Ross Gittins, Michael Pascoe, and Mark Kenny
- Former Liberal leader, John Hewson
- the University of Technology Sydney
- The Australian people
With the Federal Budget facing immense structural pressures and a “revenue problem” – as acknowledged by Treasurer Scott Morrison yesterday – where is the sense in gifting tens-of-billions of dollars to foreign owners/shareholders, and in the process worsening the Budget position and lowering national income?
The Coalition’s company tax cut policy simply does not make sense.
Let’s not forget that there is some pretty weird feedback loops going on here as well after Coalition stalwart Michael Kroger recently launched into the Business Council for failing to lobby for rents:
Victorian Liberal Party president Michael Kroger has slammed the Business Council of Australia as irrelevant, arrogant and hopeless and says it should be abolished.
“The BCA doesn’t want to campaign, it should not have to campaign because the integrity of its policy decisions should speak for themselves,” she said.
“What a hopeless contribution. No wonder the BCA are in a world of pain because they’re an irrelevant organisation and they may as well wind up, frankly,” he said.
“This is an appalling contribution. If you want to know why these people have such a hopeless record of failure…the greatest evidence of that is this comment.”
Mr Kroger said the Coalition had taken to the last election “some of the most business-friendly policies I have seen in my lifetime” but “the BCA was missing in action for that whole campaign”.
Bad policy covered over by a Government begging to lobbied. Pretty ridiculous stuff.
