Senior Fairfax commentators, Peter Martin and Michael Pascoe, have joined the chorus rubbishing the Turnbull Government’s announced company tax cut, arguing that it could actually make Australians worse-off.
Here’s Peter Martin’s critique:
…the benefits [from a company tax cut] are nowhere near as certain as Turnbull and others think. And the costs? They’re scarcely talked about, except in the Treasury’s fine print.
One of the costs of cutting company tax is that government would have to push up other taxes to get back the billions it would give away. The Treasury says this could be done by lifting income tax rates, by allowing bracket creep to run, or by an extra lump-sum tax on households. It could also be done by cutting government spending, but here Treasury issues a health warning…
In other words, it’s not easy to find the billions needed by cutting government spending, a point Turnbull himself acknowledged in 2005 when he said, “given the demographic challenges we face it would be rash to assume that overall the expenditures of the federal government can be materially reduced”.
Which leaves tax hikes, ones that aren’t yet specified. It’ll cost about $11.3 billion per year to cut the company tax rate from 30 to 25 per cent.
That’s an independent estimate, from Independent Economics, the consulting firm hired by Treasury to provide a check on its numbers. It’s about the sum the government spends each year on the Pharmaceutical Benefits Scheme. The government will get a chunk of it back straight away ($3.1 billion) in higher income tax collections from shareholders who will miss out on imputation credits, leaving it an initial $8.2 billion per year out of pocket…That’s right, most of the benefits of cutting company tax flow to foreigners…
And here’s Michael Pascoe’s critique:
…it’s only obvious that corporate tax cuts are good for foreign shareholders. Beyond that, the assertion is very debatable.
Domestic shareholders would see a matching reduction in their franking credits, and the correlation between shaved corporate tax and greater corporate capital investment in a time of global excess capacity is a very long way from clear. When throwing ultra-cheap money at corporations hasn’t resulted in an investment lift, it’s hard to see why shaving tax rates would.
The government and the big business lobby have been relying heavily on the assertions of old-school trickle-down Reaganomics and a little Treasury modelling that has been wilting rapidly under further examination.
Their critiques follow modelling from Victoria University senior research fellow, Janine Dixon, showing that cutting company taxes would actually reduce national income – the best measure of living standards:
This is because cutting company taxes would primarily benefit foreign owners/shareholders at the expense of Australian taxpayers, hence lowering national income.
And let’s not forget The Australia Institute’s (TAI) analysis of historical data, which showed that prior cuts to company taxes have not benefited Australians, namely:
- Wages and mixed income has declined as a share of GDP as corporate taxes have been lowered.
- Average unemployment rates have risen as company tax rates have lowered.
- Growth in foreign investment as a share of GDP was strongest when Australia’s company taxes were highest.
- GDP per capita has fallen as company taxes have been lowered.
In short, the Turnbull Government’s plan to cut company taxes has not been thought through and should be abandoned.
