TAI demolishes company tax ‘tricklenomics’

The Australia Institute’s chief economist, Richard Denniss, has continued his commendable campaign against the Turnbull Government’s announced cutting of the company tax rate from 30% to 25% over a decade, demolishing the purported “trickle-down” benefits to lower paid workers. From ABC’s The Drum:

…if the Turnbull Government’s corporate tax cuts go ahead, will business groups in Australia support linking the minimum wage to average wage growth?

In the last five years all of the major employer groups have opposed all of the proposals to lift the minimum wage in line with economy-wide productivity growth.

That is, in the last five years not only has the minimum wage failed to grow in line with economy-wide productivity growth, one of the reasons that it failed to do so is that the major employer groups have systematically argued to the Fair Work Commission that such wage growth would be “irresponsible”…

It is hard for the benefits of investment and productivity growth to “trickle down” when employer groups insist on building dams to capture the gains for themselves…

To be clear, the same employer groups who are endorsing modelling by Treasury and Chris Murphy that is based on the assumption that wage growth and productivity growth go hand-in-hand have argued for the past 10 years that such wage growth is “unaffordable” and “harmful” to the economy…

The much vaunted economic models being deployed in defence of a $50 billion windfall to existing businesses for existing investments does not “conclude” that the wages of low-paid workers will grow, it assumes it. And the assumption sits in stark contrast to the behaviour of those who are endorsing it…

For employer groups to simultaneously assume that the benefits of their tax cut will “trickle down” to low-paid workers while knowing that they will fight against any such flow is obscene.

Denniss also published an important piece over the weekend explaining why business groups, like the Business Council of Australia, have become just another lobby group looking after their own interests, and cannot be trusted to advance policy in the national interest:

There was a time that the public took the business community seriously when it talked about what was “good for the economy”, but those days were squandered telling ghost stories about the “devastating wrecking balls” of the carbon and mining taxes. Now that business groups want to tell fairy stories about all of the rainbows and unicorns that will accompany a cut in the company tax cut, are they really surprised that no one is taking them seriously?

The abuse of economic modelling to dress up lobbyists’ interests as being in the national interest is central to the public’s lack to faith in both the government’s, and business communities’ claims about what the economy “needs”. While the modelling that the boosters for the tax cuts have been relying on is based on some dubious assumptions, the main problem isn’t what is assumed, but what is found. Put simply the modelling shows that the long-run benefits of sacrificing $50 billion in company tax revenue are trivial. The “benefits” are more accurately described as rounding error than significant reform.

According to Treasury’s in-house modelling, and the modelling it commissioned from Chris Murphy, if the company tax rate is lowered from 30 per cent to 25 per cent then gross domestic product will double by September 2038, while without the tax cut it won’t double until December 2038. Wow, a whole three months earlier. Both modelling exercises conclude that in 20 years’ time the unemployment rate will be 5 per cent regardless of whether we spend $50 billion on company tax cuts or not.

…what is clear is that the public will no longer simply accept the claims that business lobby groups make about the economy. Whyalla was not “wiped out” by the carbon price. But now that is in danger of being wiped out by imported steel, business groups that once feigned concern for steel workers have gone strategically silent. Business lobbyists that once claimed that the impact of the carbon price on the wholesale price of gas would “devastate” manufacturing sat in silence as gas export deals drove gas prices far higher than the carbon tax ever would have.

Well done Richard Denniss. It’s great to see somebody exposing the business lobby’s (and Coalition’s) propaganda.

Unconventional Economist
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  1. If we could cut the top income tax rate from 50% that would be awesome too. Bloody socialist thieves!

    • $50B would be, what, $2k per Australian? Get some good education and health care for half of that, and drop the rest on a lift in the bottom tax rung.

      Even the 180k+ crowd would benefit from that!

      • Have you not paid any attention to the last 20 years where public spending on health and education skyrocketed and outcomes worsened ?

        Nobody except a bunch of jet-setting middle managers and department secretaries and other parasitic Canberra bureaucrats would benefit from such a proposal.

    • drsmithyMEMBER

      There should be additional top-end tax brackets going up to 80-90%.

      It is absurd someone making $200k is in the same tax bracket as someone making $2m.

      The thieves are the bankers and CxOs making millions while their employees struggle to afford shelter.

      • A nation can’t tax itself into prosperity. It would only achieve equality in misery.

      • drsmithyMEMBER

        A nation can’t tax itself into prosperity.

        Of course it can. Appropriate taxation is a key part of driving national prosperity.

        Tell us your model country with zero taxation. Then, if you don’t live there, tell us why.

        It would only achieve equality in misery.

        I guess that’s why those international indexes like happiness, equality and social mobility are dominated by countries with relatively high taxes.

      • Is the aim of taxation to equalise incomes or to cover the cost of running government ?

        I’d love to live in a world where my guaranteed income is equal to the head of Reserve Bank or Tax Office. You think I’d bother getting out of bed to show up for work on time ?

      • ceteris paribus

        There was no taxation when humankind were still up in the trees competing for nuts with monkeys. Most of us chose to go with civilisation.

  2. adelaide_economist

    And interesting how nothing has improved at all from the “debt and deficit emergency” that the Coalition came to power on but apparently they’ve got $50bn to play with for zero overall benefit.

    Now, if the debt and (budget) deficit were actually in crisis then – it means it still is now – so wouldn’t it be prudent to hold off those (ineffective) tax cuts and instead pay down actual debt?

    Or would that, you know, be expecting the Coalition to actually believe in anything they say other than as a lie to push through transfers to the (very) big end of town?

    • It’s the only job they are capable of doing. I’ve heard of many stories of chinese that couldn’t get a job in their field of study… The only thing available to them is real estate agents.

      • True. Interviewing many Chinese grads of Oz universities for finance roles (accountants/BAs), and their English is uniformly diabolical, their grasp of nuance non-existent, no capacity for thinking outside of the box, their key virtue an almost pathetic obeisance of authority. A deplorable failure of our immigration and education system.

  3. That is very astute analysis by Denniss, and to emphasise one of his key points to show up the hypocrisy of this unabashed business lobby propaganda:

    To be clear, the same employer groups who are endorsing modelling by Treasury and Chris Murphy that is based on the assumption that wage growth and productivity growth go hand-in-hand have argued for the past 10 years that such wage growth is “unaffordable” and “harmful” to the economy…

  4. Richard Deniss is supposed to be an economist, but he doesn’t understand how the minimum wage works.

    It is completely irrelevant whether business lobby groups argue for or against it.

    Raising minimum wages prices low-skilled workers out of jobs, and only benefits unionised and middle wage earners.

    The unions introduced minimum wages as a way to keep women, migrants and other minorities out of the workforce. You raise the wage “below which it is illegal to employ somebody’ and so obviously you’ll either more black market jobs and less legitimate lawful jobs being offered.

  5. My previous post got obliterated, I suspect my fat fingers were an issue!
    I assume Richard Dennis is a considered thoughtful economist especially as this website loves him & I like this website.
    So if going to 25% tax v 30% tax is going to do no good for anyone why doesn’t RD put his case for say raising the company tax rate to 35% or 40% & model what that would do?