RBA rubbishes BCA’s call to lower company tax rate

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By Leith van Onselen

RBA Assistant Governor, Luci Ellis, is the latest to challenge the Business Council of Australia’s (BCA) call to cut Australia’s company tax rate in a bid to boost investment, jobs, growth and wages. From The Australian:

Ms Ellis said the corporate tax rate in Australia was “irrelevant” for domestic investors because of our system of dividend imputation.

She 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…

Well said.

Ms Ellis could also have pointed out that Australia’s average and effective corporate tax rate are actually fairly low by advanced economy standards:

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Ms Ellis could also have pointed out that the Australian Treasury’s own modelling on company tax cuts showed minimal benefits for either jobs or growth.

And Ms Ellis could also have pointed out 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 made up elsewhere, such as by raising personal income taxes, cutting government investment in infrastructure, or slashing welfare expenditure – either of which would necessarily reduce jobs and growth.

Still, the RBA’s challenging of company tax cuts is very welcome and should hopefully stop any momentum for ‘reform’.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.