Fairfax’s Jessica Irvine has penned an interesting piece assessing the impact on the economy of the Coalition’s $48.2 billion policy to cut the company tax rate from 30% to 25% over a decade versus Labor’s policy to spend an additional $37.4 billion on schools funding over the coming decade to boost the future productivity of the workforce:
But which policy delivers the bigger economic boost?
The head of education research at the Grattan Institute, Peter Goss, has run the numbers. He finds that for the first 20 years of the policies, the economic boost from a company tax cut, based on Treasury’s numbers, slightly exceeds the benefit from improving education outcomes modelled by Hanushek.
But after two decades, the benefits from the company tax cut peak, while the returns from improvements to education continue to grow so that they are twice as valuable after 30 years “and keep getting more valuable”.
Why? Because education changes lives, and the lives of people’s children. We know the children of more highly educated parents enjoy better outcomes on a host of measures. They are less likely to rely on welfare. They are less likely to go to jail. “The benefits of better education grow over time and ripple through future generations,” Goss says.
Personally, I believe that the article overstates the economic benefits of a company tax cut. While it should indeed boost real GDP, for example via higher business investment, it could very well reduce national income, which is the far better measure of living standards (see below chart of modelling from Victoria University senior research fellow, Janine Dixon):
This is because cutting company taxes would primarily benefit foreign owners/shareholders at the expense of Australian taxpayers (who would receive a corresponding fall in franking credits), hence lowering national income.
By contrast, raising education spending would benefit the domestic population. The money would be spent here and would not leak offshore, which comes on top of the greater long-run benefits to growth from increased productivity.
In short, Labor’s education boost wins hands down over the Coalition’s giveaway to foreign owners/shareholders.
