Tax expert: company tax cuts to benefit rich

By Leith van Onselen

A leading tax expert has thrown a hand grenade at the Turnbull Government’s company tax cut policy, claiming that the rich would benefit the most if company taxes were lowered. From The AFR:

Richard Vann, the Challis Professor of Law at the University of Sydney, said the government was relentlessly eager to talk up the need to attract foreign capital with a lower company tax rate. But the “elephant in the room” was that rich locals had a lot to gain too.

“If we’re going to have the debate let’s have a frank debate,” Professor Vann told a conference hosted by The Tax Institute in Sydney on Wednesday.

“It’s the high net wealth individuals who will benefit and this is because they will get a lower tax rate on their bucket companies…”

“Let’s talk about how we tax the high wealth individuals because they are as big a part of the story as foreign capital,” he said.

The Turnbull government is due to reintroduce shortly legislation that will reduce the company tax rate for businesses of all sizes to 25 per cent…

Professor Vann said Treasury modelling used to justify the case for a corporate rate cut overstated the economic drag, or marginal excess burden, of company tax compared with personal income tax and the GST.

This was because there were many assumptions build into the modelling. If those were “relaxed”, the burden associated with company tax dropped to be more in line with the other types of taxes.

But politicians never talked about the limitations of the modelling, Professor Vann said. Nor did they acknowledge that very wealthy Australians would continue to stash family money in bucket companies held within trusts and taxed at whatever the company rate is.

This site has long argued against the company tax cut package on the grounds that:

  1. Foreign businesses and shareholders would gain the lion’s share of the benefits due to Australia’s dividend imputation system;
  2. The Budget would lose $8.2 billion a year, according to Treasury’s own modelling; and
  3. Treasury’s own modelling showed minuscule benefits to either jobs and growth.

But this new line of attack is compelling and will surely strengthen Labor’s line of attack against the package, as well as give further fuel to its successful inequality agenda.

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Comments

  1. Cue ATO “randomly selecting” *this* guy for an audit of his affairs and his clients affairs in 3 … 2 … 1 …

  2. Do we really even need to work hard attracting foreign capital? Speculative money is flowing freely worldwide.

    Chasing other countries down the tax base drain is absurd. If the government wants to help companies it would be better off making tax more efficient and streamlining regulations. Adding 12 layers of waffle to business regs doesn’t necessarily get the best outcomes for the people.

  3. I was at the conference yesterday. The case he made against corporate tax cuts was pretty strong although the one against HWIs and their bucket companies was pretty weak.

    He did point out a 25% tax rate, when coupled with new restrictions on thin capitalisation mostly evens out anyway ie less of your profits can be taken out of the country at 10%.

    An interesting juxtaposition on the day was that the Vann session – which mostly argued against tax cuts as a way to get foreign capital into the country – was followed by a session on imputation and the need to modify it because of the bias it creates for Australian capital not to go offshore.

    • Vann also pointed out the contradiction in the “cut” case because it suggests that most of the benefits of a tax cut will go to labour in which case you wonder why it would attract more foreign investment at all.

    • Vann has subtly modified his position. He was in favour of company tax cut to 25% fairly recently. He may retain this view in theory (most experts do) however emphasises it is not a black and white issue, benefits may be unevenly distributed. Did he mean benefits go to labour per this:

      Improved capital re-allocation increases overall productive efficiency in the economy and therefore expands the labor market. Relative to the benchmark economy, a corporate income tax cut can reduce the non-employment rate by up to 7 percent.

      https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3011840