Today the rent seekers are out in force at the AFR:
A coalition of business groups has launched a blistering attack on Labor and Green opponents of corporate tax cuts, warning they are increasingly demonising employers of 80 per cent of all workers.
Alarmed by the escalating anti-business rhetoric of the election campaign and attacks on the Coalition’s plan for business tax cuts, the groups challenged critics to come up with a more realistic way of boosting jobs, investment and living standards.
Writing in Thursday’s The Australian Financial Review, the Australian Industry Group’s Innes Willox, the Australian Chamber of Commerce and Industry’s James Pearson, the Business Council of Australia’s Jennifer Westacott and the Minerals Council of Australia chief Brendan Pearson argue that the fight against company tax cuts is totemic of a broader anti-business sentiment.
They say this comes at a risky time for the economy as it transitions away from resources investment.
Last month, Fairfax’s Peter Martin published an excellent critique of the Coalition’s announced company tax cut, which would see the company tax rate reduced from 30% to 25% over a decade:
..the benefits [from a company tax cut] are nowhere near as certain as Turnbull and others think. And the costs? They’re scarcely talked about, except in the Treasury’s fine print.
One of the costs of cutting company tax is that government would have to push up other taxes to get back the billions it would give away…
It’ll cost about $11.3 billion per year to cut the company tax rate from 30 to 25 per cent.
That’s an independent estimate, from Independent Economics, the consulting firm hired by Treasury to provide a check on its numbers. It’s about the sum the government spends each year on the Pharmaceutical Benefits Scheme. The government will get a chunk of it back straight away ($3.1 billion) in higher income tax collections from shareholders who will miss out on imputation credits, leaving it an initial $8.2 billion per year out of pocket…
That’s right, most of the benefits of cutting company tax flow to foreigners…
Yesterday, Martin followed-up with an excellent critique of the modelling from “Independent Economics” used by the Treasury and Coalition to justify the $8 billion per year cost of the company tax cut:
By way of comparison, universities cost the budget $9.6 billion per year the Pharmaceutical Benefits Scheme $10.8 billion…
The Independent Economics modelling finds that after several decades the $8 billion per year would lift living standards by between $5 billion and $9 billion. That’s not an increase of $5 billion to $9 billion per year, its an eventual increase that would be maintained. As a proportion of gross national income it is somewhere between 0.5 and 0.7 per cent. As an increase per year it is less than 0.1 per cent. Rounded to one decimal place it is 0.0 per cent.
And the boost to jobs would be even smaller. Independent Economics says employment would eventually climb by 0.17 per cent if the tax cut was funded by a tax on households, or by as little as 0.02 if it was funded by cutting government spending. That’s an eventual increase of between 2400 and 20,400 jobs. By way of comparison employment has climbed by an average of 24,400 per month each over the past year. It means that after 20 to 30 years the $8 billion per year holds out the prospect of delivering an extra month’s worth of employment growth.
It’s not many jobs and not much growth…
By not committing himself to a program that promises (small) benefits in return for an escalating cost, it is Labor that’s being the most financially responsible. Even better, the benefits of its own tax measures; tighter controls on negative gearing and tougher capital gains tax rules, build over time.
The further out you go, the better Labor’s tax policy is for the budget and the worse the Coalition’s.
Too right. Labor’s proposed wind-back of negative gearing were estimated by the Parliamentary Budget Office (PBO) to save the Budget some $32.1 billion over a decade. And Labor has promised to use these savings to boost spending on education – a policy that offers far more benefits to the resident population than a company tax cut.
Business is always decrying the absence of structural reform, yet here it is for the long term but it prefers shorter term support.
A growing conga-line of commentators and analysts are queuing up against the Coalition’s company tax cut. Along with Peter Martin, there’s his Fairfax colleagues Ross Gittins, Michael Pascoe, and Mark Kenny.
Think tanks The Grattan Institute and The Australia Institute have both debunked the modelling supporting the company tax cut, as has the ABC’s investigative reporter Stephen Long.
Meanwhile, Goldman Sachs has questioned the purported benefits, as has former Liberal leader John Hewson.
And who can forget the modelling from Victoria University senior research fellow, Janine Dixon, showing that cutting company taxes could actually reduce national income – the best measure of living standards – because the lion’s share of the benefits would flow offshore:
After weighing-up the evidence, the Turnbull Government’s company tax cut plan is an expensive dud that should be abandoned.
