Scott Morrison continues to push flawed company tax cut “trickle-nomics”

By Leith van Onselen

Treasurer Scott Morrison has signalled that company tax cuts will be a legislative priority for the Federal Government when parliament resumes in February, citing new OECD research which concluded that across-the-board corporate tax cuts result in increased business investment and “substantial” income gains for all wage and salary earners. From The AFR:

Company tax cuts bring benefits to people at all income levels, an OECD study has found, and do not unfairly favour the rich.

The finding came as Scott Morrison told The Australian he intends reintroducing legislation to cut taxes for companies with turnover above $50 million in the first few weeks after parliament resumes on February 5.

“It is an early agenda item for the new year,” the Treasurer said.

The OECD study backs government arguments that cutting the company tax rate for all companies will boost business investment and contradicts Labor claims that company tax cuts ­reward those on high incomes.

“Lowering the effective rate of corporate income tax (as part of a tax shift) can deliver substantial income gains for all with few consequences for the distribution of income,” the study says. “No statistically significant effect on the income distribution appears for company income tax”…

The OECD study, based on results in 34 advanced countries between 1980 and 2014, found that lower company taxes encouraged businesses to invest more in innovation to improve their returns…

There are two major flaws with the OECD’s research as it pertains to Australia.

First, unlike most countries, Australia has dividend imputation. This means that the financial benefits from cutting company taxes would flow almost exclusively to foreign owners / shareholders, thereby representing a direct fiscal transfer from Australian taxpayers to overseas, and reducing national income.

Second, the OECD has not given due consideration as to how the Coalition’s company tax cut plan would be funded. According to the Australian Treasury’s initial modelling, released in early 2016, the full company tax cut package was estimated to cost the Budget some $8.2 billion a year. The Treasury’s more recent modelling, released in November last year, downgraded the cost of the Turnbull Government’s company tax cut package to around $4 billion a year.

Either way, the cost to the Budget would be significant and would need to be made up somehow, most likely by increasing the tax burden on workers, as well as cutting expenditure in other areas (e.g. social services). Such actions would necessarily lower growth and offset any benefits from cutting company taxes.

Herein lies the fundamental problem with the Coalition’s company tax cut plan. The Treasury’s own modelling showed minimal benefits to either jobs or growth – primarily because the benefits flow to foreign business owners/shareholder – but a seismic shift in the tax burden from companies to individuals.

It’s a policy with immediate large direct costs and vague benefits long into the future.

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    • Not forgetting there are plenty of establishments still charging a10% surcharge on Sundays and public holidays.

    • The Minerals Council of Australia is at it again today in the SMH:

      “A day after doubling down on calls for company tax cuts, the council’s interim chief executive David Byers said the government should remove rigid workplace laws and environmental approvals, and end the ban on nuclear power.

  1. It will only make a difference to small companies, anyway. Most big companies with the exception of banks and supermarkets pay almost zero tax, as they make a “loss”. Strangely, they can still pay dividends, lobbyists and bonuses, though…

    Glencore booked $22.4 billion in income in Australia in 2015-16. It paid no tax. Not a cent. Qantas booked $15 billion. No tax. Not a cent. Origin booked $12 billion. No tax. Not a cent.

    The list goes on and on. Energy Australia: $7.8 billion income, no tax. Exxon: $6.7 billion income, no tax. British Gas: $6.2 billion income, no tax. Toll Holdings: $5 billion income, no tax. Bluescope Steel: $4.9 billion, no tax. Vodafone: $4.2 billion, no tax.

    When you probe the data, it’s pretty obvious we’re all being fleeced.

    • Exactly. Until there’s a much better regulatory framework for properly capturing corporate tax in Australia, there will be no public support for corporate tax cuts.

      Even in the US, there is litle public support for corporate tax cuts. People are sick and tired of corporate tax avoidance.

    • As regards the formerly state owned utilities the Thatcher government in the UK assumed that the dividend streams formerly paid by public bodies to the Treasury would be covered by the tax recovered from the privatised entities. They all set up ‘structures’ to minimise or pay no tax. As we all know corporations are shafting and free riding the community that they earn their profits from.

  2. Um, what about the fact that just about every other nation in the OECD has a slower immigration rate.

    We all know that foreigners come here to work for illegal wages. Unfortunately the left wing thinks everyone in the 3rd world is angelic.

    I do not care how much George Osborne has cut the corporate tax rates as long as Theresa May is kicking out low-wage foreigners to ensure that the jobs in England are given to Britons.

    Chicken Tandoori and Rogan Josh restaurants in England are closing because if they want to import a foreign cook, PM May says “you must pay them £29k/year or more”. Good riddance to those who can not compete.

  3. Be fair. For someone as obviously stupid as Morrison he can only master one piece of information a year.

  4. agree imputation needs (NEEDS) to go!! There is research out of Harvard and Columbia that I agree with that reflects that the optimal company tax rate is NIL (or low as possible). In the reports they use Ireland and Singapore as examples (that I recall)(there were others). Whilst it would impact my profession I support the drive to NIL company tax!!

    • Is there are chance that their research is biased because the papers have been written by biased writers, or they have have been paid to get a certain outcome, or the universities themselves serve the interests of the big end of town?

      I agree that if you have no industry like Singapore or Ireland that its a good idea to give tax breaks to multinationals corporations to set up offices there so that they can become a tax heaven and lots of locals will be employed in the game of international income shifting and tax avoidance/evasion.

      For Australia a nil tax rate would mean that foreign takeovers would be even more attractive since we have real assets to sell while Singapore and Ireland have very little (only their real estate). The drain on our national income from the foreign takeovers is massive and increasing yearly, particularly because of their tax rorting.

      • I agree that if you have no industry like Singapore or Ireland that its a good idea to give tax breaks to multinationals corporations to set up offices there so that they can become a tax heaven and lots of locals will be employed in the game of international income shifting and tax avoidance/evasion.

        No they won’t. The tax-haven “office” is a switchboard and a mailbox. All the work that might otherwise have happened there is offshored to low-wage countries.