Since the Turnbull Government announced its $48.2 billion policy to cut the company tax rate from 30% to 25% over a decade, I have condemned the plan arguing that it would result in benefits flowing to foreign business owners/shareholders, while doing nothing to benefit the domestic population. An explanation of this position can be found here. But if you want an alternative one, consider the following from The Drum’s Michael Bradley:
The ultimate owners of companies are people, and they pay income tax on their dividend earnings. If the company is paying less tax, then the franking credit on the dividends is reduced, so the amount the individual shareholders have to pay to make up the difference goes up by the same amount. The net effect is zero. The resulting economic growth is also zero.
It’s true that two types of companies and shareholders will derive a net benefit from a company tax cut. First, companies that reinvest the extra profit rather than distribute it as a dividend will get a benefit. However, most small businesses distribute all their profits as dividends because their owners rely on that as their personal income. Secondly, there are the shareholders who don’t pay income tax in Australia, either because they live overseas or because they use Panama-style tax “minimisation” structures. As Duncan would say, rich people.
That’s all just a long way of saying that the small business tax bonanza the Government is selling is largely illusory…
Today, ABC News has reported on new research from The Australia Institute, which shows how Turnbull’s company tax cut would lead to billions of tax dollars flowing to the US Treasury:
The Turnbull Government’s planned company tax cuts would slash Australian revenue while delivering a multi-billion-dollar tax windfall to the US Treasury, new research says.
The US company tax rate is 35 per cent, while Australia’s is 30 per cent. Under a tax treaty, American companies paying tax in Australia would have to make up the difference at home.
Using data from the US Internal Revenue Service, research by the Australia Institute found the planned company tax cut outlined in this month’s budget would transfer more than $11 billion in revenue from Australian to US coffers…
“So in a sense what you’ve got is a tax transfer from the Australian ATO to the Internal Revenue Service (IRS) of the United States,” the Australia Institute’s executive director Ben Oquist said.
He argues that Australia’s lower company tax rate was effectively a gift to the US, allowing its tax office to collect more revenue at Australia’s expense.
And if the company tax rate is cut lower, the size of the gift will grow.
Given that the company tax cut would come at the expense of spending on health, education, infrastructure and the like, which each offer far more social and/or productivity benefits, why would you cut the company tax rate?
