Janine Dixon from the Centre of Policy Studies at Victoria University has released new modelling showing that cutting company taxes, as flagged by the Coalition, would actually reduce national income – the best measure of living standards – in turn hammering another nail into the Turnbull Government’s tax reform plans. From The AFR:
“It is national income, and not production, that provides an indicator of living standards. Overall we conclude that while a cut to company tax will boost domestic production, it will lead to a fall in real incomes in the range of $800 to $2000 per person in present value terms,” Dr Dixon writes in The Australian Financial Review.
“So we come to the conclusion that a cut to company tax is not in the national interest.”
The Australia Institute (TAI) also released analysis late last month, which argued that “international and Australian data on tax rates and macroeconomic indicators provides no support to corporate Australia’s ‘instinctive’ claims that lower company tax rates bring wider economic benefits”.
In particular, the TAI found that data from Australia and OECD countries shows that:
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There is no correlation between corporate tax rates and economic growth in OECD countries.
Countries with lower company tax rates have lower standards of living, measured as purchasing power of GDP per capita.
In addition, Australia’s historical data shows:
Wages and mixed income has declined as a share of GDP as corporate taxes have been lowered.
Average unemployment rates have risen as company tax rates have lowered.
Growth in foreign investment as a share of GDP was strongest when Australia’s company taxes were highest.
Moreover, according to the TAI’s latest “Follow the Money” Podcast, the top 15 companies in Australia would receive one-third of the benefits of a company tax cut, with the CBA alone benefiting to the tune of $600 million per annum from a 5% cut to the company tax rate (from 30% to 25%).
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My own thoughts on whether company taxes should be cut have been articulated previously.
In a nutshell, I only support cutting company taxes if it is part of a broad tax reform program that shifts the entire tax base away from productive effort (both workers and companies) onto more efficient sources, such as land and resources, along with the closure of generous taxation concessions that favour the old and the asset rich.
Cutting company taxes in isolation would be a retrograde move, in my opinion, as it would further shift the tax burden onto workers at a time when the population is aging, the share of workers in the economy is shrinking, and other tax bases are in structural decline.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
