Ignore RBA tax cut nonsense

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By Leith van Onselen

As expected, Treasurer Scott Morrison is using Thursday night’s speech by RBA Governor, Phil Lowe, to pressure the Senate cross-bench to pass the Coalition’s plan to cut the company tax rate to 25% from 30%. From The Australian:

Scott Morrison has seized on the Reserve Bank’s backing of company tax cuts in a letter sent to Senate crossbench members over the weekend, ramping up the pressure to win their support and isolate Labor over its opposition to the bill.

With the Enterprise Tax Plan Bill set to pass the lower house tomorrow, the Treasurer has sought to use an implicit endorsement last week by RBA chief Philip Lowe in the government’s campaign to sway independent Nick Xenophon and his two fellow Senate colleagues, who have said they were “open to talks but yet to be convinced”.

Mr Morrison took the unusual step of emailing all non-Coalition members of parliament a copy of Mr Lowe’s speech, which also referenced the independent central banker’s calls for “fiscal buffers”, which Mr Morrison argued was a compelling case to support the government’s $13.2 billion worth of savings measures still before the parliament. “I urge all members of the parliament, of the House of Representatives and in the Senate, no matter which state you come from or which political party you represent, to carefully consider this contribution by the governor of the Reserve Bank and to support the government’s Enterprise Tax Plan and budget repair legislation … that are necessary to protect our standard of living,” the letter said…

I implore the Senate cross-benchers to read Phil Lowe’s speech carefully, because it is full of contradictions.

Specifically, Lowe told the audience that:

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  • Australia has to lower corporate taxes to attract more foreign investment;
  • Australia has to balance the Budget; and
  • The federal government has to boost infrastructure spending in order to avoid being choked by mass immigration.

Blind Freddy can see that it is contradictory to expect to follow through with the Coalition’s company tax cut plan, costing an estimated $8.2 billion per year, while at the same time boosting infrastructure spending and balancing the Budget.

Obviously, if company taxes are cut, then this necessarily means that the Budget deficit will increase and there will be less money available for infrastructure investment (other things equal). This is basic math.

The question, then, is about what is likely to deliver greater benefits to the resident population:

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  1. A company tax cut whereby the lion’s share of benefits flow to foreign owners/shareholders, and where Treasury’s own modelling forecast minimal benefits to either jobs or growth; or
  2. Critical infrastructure investment to restore Australia’s dilapidated infrastructure stock?

Clearly, the Coalition’s company tax cut plan is not the best use of scarce taxpayer funds. There are better alternatives, like boosting infrastructure investment.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.