BCA resorts to name calling over company tax cut

By Leith van Onselen

The business lobby’s new found propaganda drive surrounding company tax cuts has continued, with Business Council of Australia (BCA) CEO Jennifer Westacott has labelling Opposition Leader Bill Shorten a liar for claiming that reducing the company tax rate will adversely affect economic growth. From The AFR:

…the Business Council of Australia unleashed on Mr Shorten for his “patently untrue” claim that the company tax cuts proposed by the government will “impede growth”…

“Politicians can have differing opinions in the company tax debate, but they shouldn’t mislead the public about the facts,” said an unusually animated BCA chief executive Jennifer Westacott.

Ms Westacott essentially called Mr Shorten a hypocrite by pointing out he had once argued in government that cutting the company tax rate would increase productivity and investment, leading to higher growth, jobs and wages.

She said Mr Shorten’s new position was at odds with the majority of expert economic opinion, ranging from the Treasury and economists to the government of other nations “that are reducing their company tax rates to lure investment and jobs away from countries like Australia”.

“This isn’t ‘trickle down’ anything. There is a straight line from increased business investment to higher productivity, to higher incomes for workers,” she said. “When politicians trash the independent evidence, it’s our community that suffers. Voters deserve better.”

Sadly for Ms Westacott and the BCA, the Treasury’s own modelling on the company tax cut package shows minimal benefits for 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 has also pointed out that if companies pay less tax then some could reinvest some of what they save. But in practice, most profits are paid out to shareholders. So the tax cut won’t have much of an impact on domestic investment or jobs.

And yet despite these minuscule benefits to jobs or growth, the full company tax cut package would cost the federal budget a small fortune in lost revenue.

Again, the modelling of the company tax cut package conducted by Independent Ec0nomics on behalf of the Australian Treasury estimated that the full company tax cut package would cost $11.3 billion per year. However, this would be reduced to $8.2 billion due to “a gain in personal income tax and superannuation income tax of $3.1 billion as the cut in company tax automatically reduces the value of franking credits”.

Obviously, the loss of revenue from company tax cuts would need to be made up somewhere, such as by raising personal income taxes, cutting government investment in infrastructure, or slashing welfare expenditure. Such cuts would necessarily reduce jobs and growth.

The fact of the matter is that Australia’s unique dividend imputation system strongly undermines the case for company tax cuts, since 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.

Besides, given that the share of national income flowing to workers has fallen to the lowest level in more than half a century:

And real employee compensation has fallen sharply despite solid gains in labour productivity:

Why should anyone trust what comes out of the BCA’s mouth?

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.

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  1. The company tax cut arguments of the lobby groups and coalition play straight into the Labor equality play. It favours capital over labour, rewarding the asset rich over those that work to produce that value for shareholders. The productivity vs employee compensation graph is key here. Labor should be dominating this space on those grounds rather than nitty gritty details that the voters will zone out on upon the first mention.

  2. ceteris paribus

    Michael Kroger has told them they must barrack louder. And what Mikie wants, Mikie gets. As panhandlers for big business, I wonder if the BCA has applied for charity status.

  3. They already got a massive tax cut due to mass low-wage immigration straight from the 3rd world – to the detriment of voters and the federal budget (which is funded by income tax).

    They just want more and more.

    What we need is a massive export tax on coking coal, bauxite, LNG.

  4. I think we need a law for these “councils” and “institutes” and “thinktanks” that keep naming themselves things that sound official and fooling the general public about their motives. They are just lobbyist scum masquerading as a legitimate organizations.