Treasury secretary John Fraser appeared before the Senate economics committee yesterday arguing the case for the Turnbull Government’s company tax package. Fraser warned that Australia will have one of the highest company tax rates among developed nations following tax cuts in the US, the UK and France, and its international competitiveness will be adversely affected if across-the-board company tax cuts do not proceed. Meanwhile, Treasury adviser Michael Kouparitsas refuted Labor’s claim that foreign investors would be the main beneficiaries of the tax cuts. From The Australian:
Mr Fraser rejected suggestions that the corporate tax cuts would endanger the return to budget surplus. “I can confirm that the corporate tax cuts — we’ve put them into the forward estimates and also put them into our estimates for the longer term. They’re fully funded and we’re working on that basis,” he said.
He distinguished between the Australian approach and that of the US, where the tax cuts are being deficit-funded as a stimulus to the US economy.
“We are a much stronger economy by having a lower level of government debt,’’ Mr Fraser said.”
“I think the balancing of the need to have a sustainable fiscal situation both in terms of surplus and getting our debt to a low level is taken into account in the scope for tax cuts, both personal and corporate.”
Treasury argues that legislating a schedule for the remaining tax cuts, which would lower the company tax rate progressively from 30 per cent to 25 per cent by 2027-28, would give business the confidence to raise investment.
Mr Fraser said lower tax rates would promote greater investment, which would yield higher productivity and, as a result, higher wages. He said this was supported by economic modelling, but he said that had its limits. “My own view is it’s beyond the modelling we do because it’s about animal spirits.” He said this was evident in the early response to the US company tax cuts…
Treasury principal adviser Michael Kouparitsas rejected Labor suggestions that company tax cuts would simply enrich foreign investors, while Australian investors had the benefits neutralised by dividend imputation.
He said any short-term gains for foreign investors would soon be neutralised by a faster inflow of capital from competing businesses. “It is quite possible that with the advance announcement, the capital could flow to Australia and be in place before the tax cuts occur.
What a surprise: senior Treasury officials supporting the government’s policy. When have they ever not done this?
John Fraser’s argument that the company tax cuts are fully budgeted for and won’t endanger the return to surplus are hardly reassuring given the Treasury’s shocking budget forecasting record:
That’s right, Treasury has been forecasting a return to surplus and falling net debt since 2010, all of which proved false. Why should we believe them this time?
Fraser’s and Kouparitsas’s claim that cutting company taxes would necessarily lead to greater foreign investment and then higher wages is also highly spurious. The experience from the US has not seen greater investment nor higher wages, but rather a big increase in share buybacks. None of this should be a surprise. In January, Moody’s credit rating agency said that it did “not expect [US] corporate tax cuts to lead to a meaningful boost in business investment”.
In short, it’s trickle-down nonsense to believe that cutting company taxes will benefit ordinary workers. Instead, they’ll be left paying off an even bigger Budget deficit.
