With nothing else on the reform agenda, Prime Minister Malcolm Turnbull continues to flog his failing company tax cut agenda with gusto.
Today he will front to National Press Club to argue that Australian workers would magically be made $750 a year better-off if the company tax rate was cut from 30% to 25%. From The AFR:
Malcolm Turnbull will claim the average worker will be $750 a year better off under his proposed company tax cuts as he mounts an offensive against Labor over economic growth…
Mr Turnbull will claim that if his entire tax package were introduced, a 10-year plan to lower the rate for all companies from 30 per cent to 25 per cent, workers would also benefit.
“If we had a 25 per cent business tax rate today, full-time workers on average weekly earnings would have an extra $750 in their pockets each and every year,” he will contend.
Righto Malcolm, so why then did Treasury’s own modelling on your company tax cut package show minimal benefit to either jobs or growth? As explained by The Australia Institute’s Richard Denniss:
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…
The “benefits” are more accurately described as rounding error than significant reform.
The Grattan Institute made similar conclusions, while also noting that national income would likely be lowered by cutting company taxes, at least over the first decade.
Here are the main problems with your argument, Malcolm.
First, because of Australia’s unique dividend imputation system, the lion’s share of the benefits from cutting company taxes would flow to foreign owners/shareholders, thus representing a direct fiscal transfer from Australian taxpayers to foreigners, and lowering national income in the process.
Second, the tens-of-billions of dollars of Budget revenue lost to company tax cuts would need to be made up somehow, such as by raising personal income taxes, slashing welfare spending, or cutting back on infrastructure investment. In either scenario, households would be made worse-off.
Heck, even doyen of the Liberal Party, former treasurer Peter Costello, does not believe that cutting company taxes is worthwhile. Back in October 2016, Costello claimed that the Coalition’s company tax cut policy lacked funding, balance or coherency. And last month, Costello argued that cutting personal taxes would be far more beneficial than cutting company taxes.
If you genuinely want to boost “jobs and growth”, Malcolm, it would make far more sense to use the tens-of-billions of dollars that would be spent on cutting company taxes to undertake critical infrastructure investment and restore Australia’s dilapidated infrastructure stock, which is under siege from your own mass immigration agenda.
