The government has offered no evidence whatsoever that their proposed company tax cut will lead to more investment, more jobs and higher wages other than the assurance that it will happen “as surely as night follows day”.
In fact, actual evidence, as opposed to textbook theory and ideology, tells an entirely different story.
For example, in the last year, employment increased by about 400,000 and non-mining investment grew by 10% – the best result in four years and double the 30-year average annual growth of 5%.
Company profits have surged, reaching an all-time high in the first quarter of 2017.
But this doesn’t automatically equate to more employment as exemplified by the National Australia Bank who, when announcing a profit of $6.6 billion, also announced they would be cutting 6,000 jobs.
Ten industry leaders sent a letter to the crossbenchers pleading for them to approve the tax cuts and ‘promising’ that they would invest more in Australia if they did. The combined salaries of those ten CEOs was in the order of $65 million and five of the companies represented paid no tax last year.
When asked for a guarantee about wage rises, Jennifer Westacott very quickly backpedalled saying they couldn’t do that because the benefits would not flow through for about a decade.
Pro-tax cut lobbyists point to Trump’s tax cuts in the US where unemployment is low, Walmart has increased its minimum wage to a princely $11 per hour, and some companies have given out a one-off bonus to their employees.
The IMF acknowledges that the recent US tax cuts will have a positive impact on economic growth in 2018-19. However, this is conditional on the US government not cutting expenditure, is likely to be short-lived, and will come at the cost of increased government deficits.
And there’s the rub.
These tax cuts will be paid for either by workers paying higher income taxes through bracket creep (and Australian shareholders paying more to make up for the reduced dividend imputation) or by the government reducing expenditure, a move that Australia’s most prominent welfare groups say would be unconscionable when millions are living in poverty.
In a letter to the Senate crossbenchers signed by groups including Anglicare, Oxfam Australia, the Salvation Army and the Australian Council of Social Service (ACOSS), they expressed concern that “already disadvantaged Australians may pay more for health, education and community services.”
“We believe that a company tax cut is a mistake while almost three million people live in poverty. It is unconscionable to pursue company tax cuts while refusing to raise the rate of Newstart and other allowances.”
The head of the Reserve Bank, Phillip Lowe, doesn’t see increasing investment and company profits as a pressing issue. Instead, he says stagnant wage growth is the real crisis facing this country and that workers ought to realise the relatively low unemployment rate meant they could, and should, start asking for a larger share of the nation’s economic pie.
Rather than us giving a handout to foreign shareholders and waiting a decade to see if anything good comes of it, we should approach this from the other direction.
The economy would be far better served by increasing the tax free threshold, increasing Newstart and other welfare payments, and increasing wages. This would help lift people out of poverty and increase demand which would flow through to more jobs.
Try this line out boys.
If people have more disposable income, increasing demand will lead to more jobs, more investment and increased company profits “as surely as night follows day”.