Prime Minister Malcolm Turnbull over the weekend doubled-down on the Coalition’s plan to lower company taxes for all businesses to 25% from 30% over 10-years, vowing to reintroduce the measures to the Senate again and again if they are voted down this week as expected. From The Australian:
The Prime Minister told The Weekend Australian last night that the nation’s current tax rate was “internationally uncompetitive”…
“Bill Shorten can run his tired old anti-business politics of envy as much as he likes — but what’s his answer when business stops investing in Australia, when companies leave Australia because the tax rate is too high and Australian jobs go with them?” Mr Turnbull said.
“That’s why we are asking the Senate to support our enterprise tax plan — it is vitally important to keep investment and jobs in Australia and it will become more so with time — the global trend to lower company tax is not going into reverse. We must ensure Australian companies are competitive.”
With a crucial Senate vote expected in days, Mr Turnbull and his key ministers are determined to keep the $48.7 billion tax cut in the May budget in a bid to “live to fight another day”, even if the Senate carves up the reform to favour small businesses and block the cuts for big companies…
“We know, as Labor used to know, that if you want to increase employment you need to increase investment and the best way to do that is to improve the return on investment by reducing company tax”…
It sure is getting tiresome having to continually debunk the Coalition’s claims about company taxes. But here we go again.
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: $8.2 billion dollars per year according to Treasury’s own modelling. 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.
In any event, cutting company taxes is an incredibly expensive and inefficient way to boost “investment and jobs in Australia” for two primary reasons:
- It provides tax relief to foreign owners of pre-existing investments made under old tax regimes, and, therefore, represents a free gift from taxpayers without any new investment actually taking place.
- There is no guarantee that foreign business owners would use the windfall from lower taxes to boost investment in Australia. They are more likely invest it elsewhere, use it to pay down debt, or return it to their shareholders.
Given the huge cost of the Turnbull Government’s company tax cut plan, as well as the uncertain outcomes with regards to stimulating business investment, it makes far better policy sense to use scarce taxpayer funds to encourage new investment only, not reward pre-existing investment that is a sunk cost.
Policy options that could achieve this outcome include direct measures, such as accelerated depreciation allowances or investment allowances. Or instead we could tax new companies at a lower rate for a given period of time, say five years.
Alternatively, the federal government could 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.
Malcolm Turnbull should also acknowledge that the majority of Australian voters do not support cutting company taxed. Polling released last month by Roy Morgan Research showed that 61% of Australians do not believe lowering company tax rates would bring wider economic benefits to the community compared to 39% of Australians who believed it would. Polling conducted last year revealed similar opposition to company tax cuts.
Tin ear Turnbull should abandon his company tax cut plan while he has the chance. It’s bad policy and a vote loser.
