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.

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.