Fortescue’s Andrew (“Twiggy”) Forrest is the latest big business representative to demand that the federal government slash company taxes, warning that to not do so would damage investment and jobs. From The Australian:
The billionaire Fortescue Mining boss says Australia has one of the highest business tax rates in the world and MPs who resist a decrease should be kicked out of parliament.
“If you set up with rotten, populist government policies which make us uncompetitive, then we’re all going to do it tough,” he told News Corp on Thursday.
Here’s why your argument doesn’t stack up, Twiggy.
First, 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.
Second, the company tax cut would cost the Budget a lot: literally tens-of-billions of dollars. This money would need to be made up somehow, such as by raising personal income taxes, cutting government investment in infrastructure, or slashing welfare expenditure. Such cuts would necessarily reduce jobs and growth.
Third, 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. Moreover, because of dividend imputation, comparing Australia’s current 30% rate with statutory corporate tax rates elsewhere is like comparing apples and oranges.
Fourth, and directly related to the above, the lion’s share of Australian businesses will not benefit from a corporate 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 are indifferent to the cut:
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.
Fifth, as The Grattan Institute has pointed out, if companies pay less tax then they might reinvest some of what they save. But in practise, most profits are paid out to shareholders. So the tax cut won’t have much of an impact on domestic investment or jobs.
If the federal government genuinely want to boost investment, jobs and growth, it would make far more sense for it 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 its own mass immigration agenda.
