I’m getting the sense that the Reserve Bank of Australia (RBA) does not support the Turnbull Government’s planned reduction in the company tax cut rate from 30% to 25%.
In October 2017, RBA Assistant Governor, Luci Ellis, questioned the efficacy of cutting company taxes, claiming it was unlikely to materially boost investment, jobs, growth nor wages.
In April 2017, ex-RBA governor, Bernie Fraser, expressed concern about the growing gap between the rich and poor in Australia, which he claimed would be made even worse by the company tax cuts. Fraser also said the company tax cuts would deliver minuscule benefits “in the never never”.
In November 2017, former RBA deputy governor, Stephen Grenville, argued that the claimed benefits from cutting company taxes are “greatly overstated” and that “by Treasury’s own calculation, any advantage would be vanishingly small”.
Today, former RBA board member, John Edwards, has joined the chorus, claiming the Turnbull Government’s proposed company tax cuts would be unlikely to significantly affect Australia’s economic growth rate over the next 4-5 years, nor have much impact on business investment. From The AFR:
“I doubt company tax cuts will make any discernible difference to Australian growth or even to investment over the next four or five years. As the RBA has pointed out and as Treasury acknowledges, company tax cuts make no difference to the cost of capital or the after-tax returns for Australian-owned businesses operating in Australia”…
“Company tax cuts for foreign-owned businesses operating in Australia would make a difference to their cost of capital or shareholder returns, but under the government plan these cuts are well down the road. Meanwhile, the numbers suggest that foreign direct investment to Australia is quite strong. Given the need to balance the budget, company tax cuts are not high on my current list of priorities”…
The Australian Treasury’s own modelling on company tax cuts showed minimal benefits for either jobs or growth. The Treasury also 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.
