Business Council of Australia (BCA) boss, Jennifer Westacott, has decried the “ideological hatred” and “business-bashing” supposedly griping the nation, and is preparing a new offensive to push the Turnbull Government’s company tax cuts through the Senate. From The Canberra Times:
The nation’s peak business group is preparing a new offensive to urge crossbench senators to back Malcolm Turnbull’s sweeping company tax cuts, warning an “ideological hatred” of corporate Australia threatens to weaken wages and jobs growth for a decade.
The campaign will seize on the Prime Minister’s meeting with Donald Trump in Washington DC this Friday to contrast the “open for business” approach in the US with the furious debate in Australia over the tax paid by big companies…
Business Council of Australia chief executive Jennifer Westacott will take the US message to key crossbenchers – including Pauline Hanson – in a bid to swing support behind the Australian plan to cut the company tax rate from 30 to 25 cents in the dollar over a decade…
“I am going to do whatever I can to get this across the line. Why do I feel so passionate about this? Because I cannot see any other policy that is going to give us the growth dividend that this one is.
“I cannot see in the Labor Party’s platform what the growth agenda looks like. Sure, we should do more on education and health, but what is the bit that is actually going to get you that 1 per cent growth in the size of the economy?… we have become a business-bashing, closed-for-business country. And this will be our undoing, not in terms of a big recession or poverty but in just not being the country we could have been”…
Mr Shorten has hardened his stance against the extra help for business by attacking companies for using tax havens as well as keeping wages low while they boost executive salaries.
“I don’t see how dumping a big truck full of taxpayer funds into the pockets of multinationals in the form of a tax cut is going to help ordinary people,” Mr Shorten said last month.
From the get-go, MB has opposed the Turnbull Government’s proposed company tax cuts on the following grounds:
- Foreign businesses and shareholders would gain the lion’s share of the benefits due to Australia’s dividend imputation system;
- The Budget would lose between $4 billion and $8 billion a year, according to Treasury’s own modelling; and
- Treasury’s own modelling showed minuscule benefits to either jobs or growth.
If this labels MB a “business-bashing” site, then so be it.
Of the three reasons listed above, the second – the huge cost to the Budget – is the most pertinent. This is because the lost Budget revenue from cutting company taxes would need to be made up somehow, most likely via some combination of raising income taxes and cutting back on social spending. However this is done, it is likely to have negative impacts on ordinary workers, as well as on economic growth and job creation.
Over the weekend, the case against company tax cuts received another boost from The Guardian’s Greg Jericho, who penned the following analysis:
Arguing that company tax cuts may not have the impact that the beneficiaries say will result is hardly controversial.
As I noted in January, Moody’s credit rating agency said of the US company tax rate cut from 35% to 21% (compared with a reduction from 30% to 25% proposed here) that “we do not expect corporate tax cuts to lead to a meaningful boost in business investment”.
But given most people don’t get excited by business investment (or increased business profits), companies here have followed the lead of their US counterparts, and are saying a tax cut is needed to increase wages.
It’s all a bit of smoke and mirrors.
Company tax cuts deliver higher after-tax profits; they don’t increase sales or lower costs in the short run. Rather, the hope is that companies will make use of the tax cuts to increase investment, which in turn will lead to increased productivity, and then, in the long run, higher wages…
Wages are labour costs. Increasing them because your post-tax profit is higher is a bit like you getting an income-tax cut and telling your landlord you’re able to pay more rent…
Here as well, the evidence from the US is not very helpful. American companies have overwhelmingly used the tax cut to buy back shares (as Moody’s argued) and wage increases have mostly been given in the form of one-off bonuses rather than an actual pay rise.
The reason is obvious – a bonus is not a continuing cost, and it makes for good PR. Since the tax cut, about $5.6bn has gone towards employee bonuses, while $171 billion has been spent on share buybacks.
The conservative thinktank, American for Tax Reform, estimates that about 3.8 million American employees have been awarded bonuses, which sounds great until you realise there are 147.4 million employees in the US, so it means this covers about 2.5% of all workers, and is less than the 4.5 million workers who in January benefitted from an increase in the minimum wage in 18 states…
Tax cuts don’t pay for themselves – even Scott Morrison concedes the government will get back, through increased economic activity, only 37 cents in every dollar lost from the cut in company tax rates.
So either something else needs to be taxed more or government spending needs to be cut.
Very well argued.
Rather than complaining about unfair treatment, the business lobby needs to explain clearly why the Turnbull Government’s company tax cut plan would boost Australian welfare. To date, they have failed miserably.
