Professor flogs company tax cut dead horse

The University of Melbourne’s John Freebairn argues that reducing the tax rate for larger non-resident shareholders would stimulate economic growth and help to increase wages. From The Australian:

Mr Freebairn said lower tax rates for large corporations would provide a “stimulus to the investor”, which would see “GDP grow” and that “some of that goes to labour remuneration”.

“You clearly get a positive effect on GDP. That’s mostly going to happen with large companies that have non-resident shareholdings. That suggests labour productivity will go up and some of that will go to higher wages,” he said.

“Because most of the extra investment is foreign, it goes up in GDP but it doesn’t go up in gross national income. The little bit that goes to labour goes to gross national income.”

Mr Freebairn said there would also be a “substantial transfer from Treasury to the foreign resident” as the federal budget took a hit to lower the tax bill for foreign shareholders.

Freebairn’s argument basically goes like this:

  • Gifting billions in tax cuts to foreign shareholders would boost foreign investment;
  • More foreign investment would make businesses more productive and lift profits; and
  • Some of these extra profits would flow to workers via higher wages.

This is classic ‘trickle-down’ economics drivel. What Freebairn doesn’t say is that the loss in Budget revenue would need to be made up somehow, for example by raising personal income taxes or reducing spending on public services and infrastructure. In either case, jobs, growth and wages would be adversely affected.

Transferring billions of dollars from taxpayers to foreign residents is no recipe for lifting Australian living standards.

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