Scott Morrison just won’t let the Coalition’s company tax cut package die, declaring the ‘reform’ “critical” amid slumping productivity growth. From The Canberra Times:
Treasurer Scott Morrison has declared business tax cuts are “urgent” as productivity growth dwindles and competitor economies prepare to slash company tax rates in a bid to attract capital and accelerate economic growth.
In a speech to be delivered Tuesday launching a landmark Productivity Commission report on a new wave of measures to lift Australia’s productivity, the Treasurer will say that unless productivity growth lifts and Australia attracts new investment, wage growth will stay low.
The Senate has passed has passed only $24 billion of the government’s $50 billion program of company tax cuts, meaning the rate will fall from 30 to 25 per cent for small and medium size businesses but not for big ones.
Extending the $24 billion program of tax cuts had become “an urgent matter” given moves by the UK, France and US to cut tax to drive investment. Australia risked becoming “an uncompetitive tax island” if it didn’t act…
RBA assistant governor, Luci Ellis, last week argued that lowering Australia’s company tax rate was not nearly as important for driving investment as argued by the government and business groups:
[Ellis] said if Australia could not attract foreign capital with its current tax and regulatory environment, the exchange rate would fall, and make Australia more competitive…
Ms Ellis said the tax rate was one of many variables considered by foreign companies in investing in Australia.
She said Australia had seen a strong wave of investment in mining because of the mining boom of the last decade.
She said foreign companies invested in Australia because we had LNG, iron ore, coal and now lithium.
“We have had a strong phase of about 10 years of incredibly strong mining investment,” she said.
“Guess what? Multinational resource companies are not going to make that investment in a country which doesn’t have those resources just because they have a lower tax rate…
“The real reason we attract foreign capital rather than rely on foreign capital is precisely because we have these resources. They are available and they aren’t going anywhere.”
She said non-mining investment in Australia was already starting to pick up, as was demonstrated in the June national accounts figure…
“The reason we have a low share of business investment relative to the recent past is because we had a mining investment boom and that mining investment boom is almost over…
Back in February, Luci Ellis also told the parliamentary economics committee that the type of foreign investment matters more than the quantity:
“…what is the nature of the investment that we are getting from foreign investors and how much of it is foreign direct investment, which builds new things versus, say, purchasing of existing securities or purchasing of existing assets?”
So, even if cutting company taxes does lead to increased foreign investment, unless it is foreign direct investment, it is unlikely to have much impact on jobs and growth.
Of course, Ms Ellis could also have pointed out that Australia’s average and effective corporate tax rate are actually fairly low by advanced economy standards:
Or she could have pointed out that the Australian Treasury’s own modelling on company tax cuts showed minimal benefits for either jobs or growth. And that the Australian Treasury estimated that the full company tax cut package would cost the Budget some $8 billion a year, which would need to be recouped by raising personal income taxes, cutting government investment in infrastructure, or slashing welfare expenditure – either of which would necessarily reduce jobs and growth.
And therein lies the key problem with the Turnbull Government’s company tax cut plan. The benefits are vague, whereas the costs to the Budget are real and will need to be made up elsewhere.
