From the AFR today:
But the decision of swing senators like Hanson to oppose a Coalition policy endorsed at the last election did demonstrate how a small think tank, aided by a group of politicised commentators, can undermine government policy and disrupt long-term economic planning.
The arguments from the Canberra-based Australia Institute, which has emerged as probably the most effective opponent of business-friendly economic policies, have been repeated and amplified by union leader Sally McManus and sympathetic commentators in The Guardian, Sydney Morning Herald and The Age.
What is remarkable is how potent this loose coalition has been in the face of institutional power. The federal Treasury, the business community and the economics profession overwhelmingly support lower business taxes, which they argue will increase investment by lowering the cost of capital.
Where is this editorialised “economics profession [that] overwhelmingly supports lower business taxes”? How about some analysis of the lobbying going on in support of the tax cut?
The Australia Institute is being quite unfairly treated. It is the only evidence-based centrist economics outfit in the country. The corporate tax cut was not born of Treasury. It was an 11th hour brain fart policy from Cabinet prior to an election for which it had no policies. Treasury modeled it later, twice, to get the right outcome. And even then the benefits were small.
Nobody is going to accuse MB of being anti-Australian competitiveness. It’s all we’ve talked about for six years. But the real Australian corporate tax rate is already very low:
And lowering it further amid chronic overcapacity will not trigger investment. It will do exactly what it is doing in the US, trade a long term structural deficit for a short term boom in capital management strategies like buybacks and dividends. Much of it only benefiting foreign shareholders.
Other notable commentators have contended that cutting company taxes would worsen inequality. For example, Richard Vann, the Challis Professor of Law at the University of Sydney, claims that “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”… “very wealthy Australians would continue to stash family money in bucket companies held within trusts and taxed at whatever the company rate is”.
In a similar vein, The Australian’s Adam Creighton noted earlier this week that “cutting the corporate rate [would mean] the gap between the top personal tax rate and corporate rate would rise, sharpening the incentive for avoidance and evasion”.
Whereas former RBA governor, Bernie Fraser, has also expressed concern that cutting company taxes would deliver minuscule benefits “in the never never” and worsen inequality.
Dr John Hewson slammed the idea yesterday:
“If you help them increase that profit even more, that is give them higher net profits, they will distribute it as dividends or buy back their own shares,” he said.
“They won’t hand it out as pay rises because [while underemployment persists] they are not competing for labour.”
If the proposal were aimed genuinely at structural reform to boost productivity we’d be all for it. If it aimed to boost efficiency and market dynamics to lift income across the board – you know actual liberal market reform like accelerated investment depreciation, increased incentives to research and other more targeted benefits – then bring it on.
But as it stands the Coalition’s last minute brain fart corporate tax cut is a simple giveaway to oligarchs. Ignore their propaganda.
