A delegation of South Australia’s business leaders has cornered senator Nick Xenophon and demanded that he support the Turnbull Government’s company tax cut policy, while also pushing to ramp-up skilled immigration into the state. From The AFR:
The delegation, from the Committee for Adelaide, met Senator Xenophon in Canberra on Tuesday, along with Prime Minster Malcolm Turnbull, Treasurer Scott Morrison, and members of the ALP.
The group formed to find sustainable solutions to SA’s economic malaise. It also put to the Prime Minister and Treasurer that there should be incentives for skilled migrants, such as fast-tracked entry, if they choose to live in the state.
“We need to boost our population,” said committee chief executive Jodie van Deventer…
[The Delegation also]…urged the Nick Xenophon Team to rethink its opposition to the proposed company tax cuts, saying they would provide much-needed relief from the state’s spiralling electricity prices…
Committee chairman Colin Goodall, a former chief executive of BP in Russia, said the company tax cut would create employment. Australia was part of the global economy and had to stay competitive, he said.
Let’s debunk the business lobby’s arguments.
First, South Australia’s energy crisis has absolutely nothing to do with cutting company taxes. The energy issue should be dealt with directly, not conflated with tax policy.
Second, the lion’s share of South Australian businesses will not benefit from a company tax cut. As noted by Janine Dixon from Victoria University, 98% of small businesses (employing four or fewer people) are wholly Australian owned and because of this would not benefit from cutting company taxes:
An increase in foreign investment is generally understood to be a driver of wage growth. This is the basis for the argument that at least half of the benefit of a cut to company tax flows to workers… We find that benefit to foreign investors will exceed the total increase in GDP. In the domestic economy, benefits to workers will be more than offset with a negative impact on domestic investors and the need to address additional government deficit.
Third, the Australian Treasury’s own modelling showed minimal benefits to either jobs or growth from the Coalition’s company tax cut plan. 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.
Finally, it’s ridiculous for South Australian business leaders to demand incentives for skilled migrants, such as fast-tracked entry, if they choose to live in the state.
South Australia is already flush with surplus workers. The state has the highest unemployment rate in the nation at 6.8%:
As well as the highest underemployment rate at 9.8%:
Meaning just under 17% of workers in South Australia are underutilised – the highest in the nation:
So how exactly would opening the immigration floodgates improve the labour situation and “solve” South Australia’s economic problems? Hint, it wouldn’t.
Here’s a novel idea. Instead of joining the population ponzi that is swallowing Melbourne and Sydney and eating away their standard of living, why doesn’t the business lobby instead look at tackling the state’s excessively high cost base? They should start by addressing Adelaide’s extortionate vacant land costs, which despite the city being a low growth backwater, are the third highest in the nation when measured on a rate per square metre basis:
Given that land costs are an essential component of competitiveness, as well as the desirability of Adelaide as a place to live, making Adelaide a low cost city would confer significant benefits to the economy over the long term.
The only thing that ramping up immigration growth will do for the state under current settings is push land prices even higher, reducing productivity and competitiveness and hollowing out the state even further. The business lobby is essentially arguing for more of the policies that have already killed off the state’s formerly vibrant manufacturing base.
