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Corporate con job

Recently, Labor Senator Sam Dastayari claimed there are 10 companies that have an “unprecedented concentration of corporate influence” in Australia, to the point where it has stifled proper democratic and economic progress.

“Four banks, and we all know who they are – the Commonwealth Bank, NAB, Westpac, and ANZ – three big mining companies, in Rio Tinto, BHP Billiton, and Fortescue Metals, you’ve got your two big grocery chains, and you’ve got your big telco, which is Telstra,” Mr Dastyari said.

“The entire political debate has become so dominated by the interests that they’re pushing, and the agenda that they’re pushing. And [we’ve] ended up with this complete crowding out of a proper political discourse in this country because there is one sectional interest that is so much louder than every other voice out there combined.”

Nowhere is this more evident than in the push to reduce the company tax rate, the claim being that it will encourage greater investment and hence create jobs and growth.

In December last year, the Australia Institute released a paper which evaluates the arguments for cutting the company tax rate.

They found that a reduction in company tax to 25 per cent would give Australia’s top 15 listed companies, who pay about one third of total company tax revenue, a benefit of over $58 billion over the 10 years from July 2016.

“For the big four banks a reduction in company tax to 25 per cent would mean a benefit of $2,019 million in 2016-17 and $29,711 million for the decade starting that year. The Commonwealth Bank alone would receive benefits worth around $623 million in 2016-17 and a staggering $9,159 million over the decade.”

The banks are already making superprofits but this has not led to greater investment or more jobs – quite the reverse as we see branch closures, jobs slashed and internet banking become the norm. The Commonwealth Bank receives something like 5 per cent of the taxable company income in Australia but makes about 0.2 per cent of all private investment in Australia.

Mining companies are also laying off people hand over fist. World prices for commodities, a changing demand for energy mix, and the strength of the Aussie dollar are far more influential than tax rates in mining investment. On 2015 figures, BHP Billiton and Rio Tinto, two of Australia’s biggest coal miners would stand to gain almost a billion dollars per annum ($933 million) with a company tax reduction to 25%. If their average profits over the next decade are around 2015 levels then their gain would be $9.3 billion.

Likewise with the grocery chains who are moving to self- serve checkouts or ordering online. Local producers are paid a pittance or undercut by imports. The Coles/Woolworths duopoly means the investments these two make tend to be related to their attempts to gain advantage over each other through strategic property purchases and the like. Woolworth’s annual reports suggest its cash flow is more than sufficient to finance the investment and property development it undertakes.

There is no question that we could do with investment in telecommunications but the Australia Institute described Telstra as “a big and lazy monopolist that has been happy to do just enough to maintain its monopoly but has failed to keep up to date with world best practice in, for example, internet speed.” They made $4.23 billion in net profits during the 2015 financial year and the new CEO has announced that Telstra will invest as much as it needs to win in the mobile space. It is hard to see how increasing their monopoly will provide jobs.

“None of the big 15 companies are likely to be big innovators or investors in the near future and it is hard to see what investment or any other return Australians would receive in return for the $58,075 million gift.”

Almost half of the reduction in company tax would be recovered through a reduction in franking credits through the dividend imputation system. The 10 year $58,075 million benefit to the top 15 listed companies would be a net cost to the budget of $26,715 million.

“Australian shareholders see no difference in their after tax position so it is hard to imagine that the ultimate company owners would perceive any increase in the incentive to invest or innovate.

In the case of foreign shareholders many will likewise receive no change in their incomes but foreign tax authorities are likely to gain at the expense of the Australian tax office under the double tax agreements Australia has with many countries in the world.”

Company tax rates buttress the personal income tax system by reducing the avoidance that takes place through disguising personal income as company income. If the gap between the top marginal rate and the company rate is too large, it encourages the wrong behaviour.

According to the Liberal Party, “The Menzies period is recognised as a golden era in Australia’s history with widespread prosperity, a flourishing economy and work for all.”

It is worth noting that, under the Menzies Government, the tax on companies varied from 45 to 49 per cent and the marginal tax on the top income earners was 75 per cent.

Recently the IMF Managing Director, Christine Lagarde, said:

“Our research shows that, if you lift the income share of the poor and middle class by 1 percentage point, then GDP growth increases by as much as 0.38 percentage points in a country over five years. By contrast, if you lift the income share of the rich by 1 percentage point, then GDP growth decreases by 0.08 percentage points.”

As any business executive will tell you, when your customers are hurting, your business is hurting. With interest rates at record lows, the problem is not that companies need cheaper capital or more cash with which to invest. The problem is that the customers have less disposable income, so there’s no reason for companies to invest cash, because it won’t produce a return.

In reality, it is not investors and entrepreneurs who create jobs but a healthy economic ecosystem.

We could do worse than to emulate one of the great historical innovaters, Henry Ford, who believed our super-rich and profitable companies must share more of their vast wealth with their rank-and-file employees both to increase their buying power, stimulating demand, and to reduce employee turnover thus reducing recruiting and replacement cost.

Taxes can never make a profitable business unprofitable. If we are trying to encourage certain behaviour – investment, innovation, and employment – then, rather than reducing the company tax rate to increase profits for shareholders, we should provide targeted incentives to companies who do invest in Australia and employ more people or engage in worthwhile research.

 

 

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  1. Jaquix

    Thank you Kaye. These are the sorts of things which should be read in Murdochs papers but of course never are. The quote from Christine Lagarde is particularly interesting. Facts, not fairy tales like “trickle down”. Plus the Liberal Party Menzies bit. Present day Liberals re-jigging the truth of the tax rates at the time, which goes against their push for low taxes now. These 2 bits stood out for me in this article. I hope it gets a wide readership.
    “According to the Liberal Party, “The Menzies period is recognised as a golden era in Australia’s history with widespread prosperity, a flourishing economy and work for all.” It is worth noting that, under the Menzies Government, the tax on companies varied from 45 to 49 per cent and the marginal tax on the top income earners was 75 per cent.

    Recently the IMF Managing Director, Christine Lagarde, said: “Our research shows that, if you lift the income share of the poor and middle class by 1 percentage point, then GDP growth increases by as much as 0.38 percentage points in a country over five years. By contrast, if you lift the income share of the rich by 1 percentage point, then GDP growth decreases by 0.08 percentage points.”

  2. z

    for a long time, I’ve realized that business lobby group ( ACCI etc.) are pushing for tax reform for the purpose of shift tax burden to Aussie family’s living cost (GST hike), they built up huge influence on Government and policy maker, the only thing able to slowdown them is the forthcoming election. as matter of fact, corporate tax avoidance is a very severe problem which widely existed in this country, 579 major corp. paid zero tax in 2014, that is the figure more than one third of the total corp. why on earth is that paid zero still demands on reduce tax for them? this country need now is tougher the corporate tax enforcement not the otherwise.

  3. Paul

    I found this the other day & it makes a lot more sence than the crap we are being fed.

    I just googled ‘3 Economic Myths’

  4. mark delmege

    The non payment of tax and use of tax havens by the wealthy and big business reminded me somewhat of an article I read the other day. Jump to the 2nd story and you will be able to draw your own conclusions and similarities on what has become the norm and why it must be changed.

    Hockey for all his faults did get the ball rolling here (by trying to put the tax office inside many companies) but really that only happened after groups like the ICIJ released to the world databases naming tax dodgers https://offshoreleaks.icij.org/search

    Anyway the story http://www.liveleak.com/view?i=604_1453786018 (as i said the 2nd story)

  5. Kaye Lee

    Great video Paul. Succinct and truthful. Another thing that troubles me is this idea that free trade, or trade liberalisation as some call it, has to be good. So far, the free trade agreements we have signed have caused revenue write-downs in the billions and the destruction of manufacturing jobs. Why is Andrew Robb refusing an independent cost benefit analysis of the TPP? It seems to me that the FTAs are beneficial for a very small group of Australians and the price we have paid for them is far too high but hey, I am not in a position to crunch the numbers and those who are, won’t.

  6. Ted

    Companies are moving back office duties offshore at a record rate therefore the economy suffers unemployment rises and spending depletes.In these incidents employers should be penalized on a imprt duty tax on the goods that are made and shipped to Australia by Australian registered companies to supplement the loss of tax revenue.The tax base is all wrong should revert back to the Menzies era for individual taxs and stay as is for company tax.

  7. Möbius Ecko

    Whilst I agree with the thrust of this piece I would never use Henry Ford as a good example for anything.

  8. Kaye Lee

    This government’s approach to pretty much everything is punitive action towards the disadvantaged and protection for financial risk takers who walk away from their failures only to start the process again, ignoring all those they hurt along the way.

    More jails, truancy officers, income management, welfare crackdowns, work for the dole, removal of funding for health and education, removal of funding for preventative programs in crime and health, withdrawal of support services, tighter eligibility for family payments and pensions. The poor are demonised and low income earners asked to bear the brunt of government savings.

    Kate Carnell can say till she is blue in the face that we must reduce income and company tax but what she cannot do is show any proof of that leading to a higher standard of living for the majority. Young Liberals are indoctrinated into a mindset from a very young age and they lack the ability to question the gospel according to big business.

    Instead of less regulation we need more. We should encourage and reward desirable behaviour and legislate against avoidance and exploitation. Subsidies to the fossil fuel industry make no sense whereas facilitating the expansion of renewable energy has obvious benefits. Cutting funding to education and research makes no sense. Paying polluters makes no sense. Keeping wages low makes no sense. Abandoning the superannuation guarantee increase makes no sense. Ripping millions out of Aboriginal legal aid makes no sense.

    It seems to me that business should be waiting outside the door while the people decide what’s on and off the table.

  9. Wally

    One of the biggest problems is Company executives and LNP members have got to the point where they believe their own bullshit to the point of believing it is the gospel. Anyone who dares to disagree with them becomes a target to ridicule and humiliate, just like the way they have treated unions lately.

  10. Kaye Lee

    They also cannot admit wrongdoing. The Timor l’Este case is unbelievable. A previous government committed an illegal act to gain commercial advantage. Rather than apologising and making reparation, we raid the office of their lawyer and confiscate the passport of their chief witness. Everyone knows what happened but our government refuses to be accountable….for anything….including the well-being of its constituents. Individuals must succeed or fail at the mercy of the market with government washing their hands of responsibility. The market will determine all. Every person for themselves.

  11. silkworm

    “Almost half of the reduction in company tax would be recovered through a reduction in franking credits through the dividend imputation system.”

    It is not the purpose of taxation to raise revenue, and so any taxes lost to one sector do not have to be recovered through another sector. (MMT)

  12. Kyran

    “It seems to me that business should be waiting outside the door while the people decide what’s on and off the table.”
    You have written much that I respect, but none more than this. “Business” is a legal construct for the benefit of accountants, politicians and tax offices. Devoid of humanity. Devoid of ambition, other than ‘profit’. And ignorant of the fact that without ‘people’ there is no ‘business’. Regardless if it’s inhumane, or vociferously endorsed by our elected representatives.
    The beneficiaries of this corporate largesse are, apparently, us, through our super funds.
    The tail has been wagging the dog for too long. Thank you, Ms Lee. Take care

  13. Terry2

    On 10 February Scott Morrison said this :

    “I have been very clear about my view on negative gearing. The truth is that negative gearing is used in the overwhelming majority of cases by nurses, by police officers, by teachers – by ordinary hard-working Australians.”

    My instincts tell me that this is bullshit. I know several nurses and a couple of teachers and they are flat out owning one principle residence let alone rental properties.

    Does anybody have any sources on his comments : i may be totally out of touch.

  14. Kaye Lee

    silkworm,

    The point of that observation was to quantify the effect of a reduction in company tax.

  15. John Oliver

    In any given week a new cafe/restaurant opens in Toowoomba. How? Why? Are questions I ask myself. They have been sucked in by low interest rates, nothing more. I feel sorry for them, as customer spending is discretionary. No money, no cafe, as it goes with taxis….They will fail.

  16. Wally

    Terry2

    I think the generation one belongs to plays a big part on the number of friends who have a negative geared property. A lot of my friends do own rental properties and so do I, the ability to own your own home plays a big part in making it affordable top buy more property. Most of the younger people I know struggle just to own a family home but they are not satisfied with second-hand furniture, cars etc. that were more than satisfactory when I first setup house.

  17. silkworm

    The same goes for z’s “observation” that “business lobby group (ACCI etc.) are pushing for tax reform for the purpose of shift tax burden to Aussie family’s living cost (GST hike)….” There is no such thing as a tax burden. Taxes do not fund anything. Fiat money does… because MMT.

  18. harshmind

    We have had a generation to understand that the trickle down theory, or supply side economics, only results in the rich becoming richer. If the trend continues for another generation conditions will become conducive to the type of revolution in which the guillotine is seen as an instrument for social justice. It’s what’s happened with IS, not that I’m condoning them but conditions are extreme over there, and have been since the invasion of Iraq on false pretences and the sponsorship of the Taliban by the US in Afghanistan. While it won’t worry those with the base cunning of a Trump or Turnbull, who could be in their bolt holes tomorrow and set up for life, it will cause massive disruption to everyone else. Time to take to the streets and show we have a peaceful and reasonable voice. One thing I love about the on-line petitions going around these days is that it only takes 50,000 to 100,000 signatures for the pollies to start shitting their pants. Stick it to those entitled bastards and show them we demand moral behaviour before profits.

  19. totaram

    silkworm: “There is no such thing as a tax burden. Taxes do not fund anything. Fiat money does… because MMT.”

    I don’t want to contradict that, but just post a cautionary note. Tax “burden” is of course emotive language. However, taxes do remove spending power from the private sector, and thus they create “fiscal space” for govt. spending. In other words, govt. can spend more without causing inflationary effects. So taxes have their place and function. Progressive taxes also help to carry out redistribution of wealth, which the very “leftist” IMF has said helps economic growth (see above). Shifting taxes from the rich to the poor is regressive (e.g. GST increase) and has always been the neo-liberal objective. Their “reasoning” is the completely discredited supposition that reducing taxes on the rich will increase investment by them and create jobs. The real objective of course is to shift wealth to the rich. As such, a shifting of taxes in this regressive direction can be considered as shifting the “burden” onto the poor.

  20. Michael

    Bank of North Dakota has business loans, PACE Program, where, amongst other conditions, in return for a reduced interest rate, the borrower must demonstrate that within one year, there will be a minimum of one job created and retained for every $100,000 of total loan proceeds. Otherwise, the interest buydown will be prorated to reflect any partial fulfillment.

    Wall Street is not happy because it is a state chartered bank – just like we used to have ….

    Amazing!

  21. Lee

    “Whilst I agree with the thrust of this piece I would never use Henry Ford as a good example for anything.”

    Henry Ford was a weird fellow in some ways, of that there is no doubt, but he was a very shrewd businessman. According to Wikipedia his net worth was $188.1 billion (based on February 2008 data from Forbes), which is far greater than the Ginas and Ruperts of this world. In 1914 he introduced the $5 workday, which more than doubled the pay rate of his workers (although he did dictate their lifestyles in order to receive that pay but many were obviously willing to comply in return for such generous remuneration.) In recent history, Gina Rinehart has declared Australians lazy because they won’t work for $2 per day.

  22. Lee

    “I have been very clear about my view on negative gearing. The truth is that negative gearing is used in the overwhelming majority of cases by nurses, by police officers, by teachers – by ordinary hard-working Australians.”

    “My instincts tell me that this is bullshit. I know several nurses and a couple of teachers and they are flat out owning one principle residence let alone rental properties.”

    @Terry – If this was true, there wouldn’t be such a shortage of reasonable rental properties. For some years now in Adelaide it has been difficult for single people to rent 3br houses through an agent. Due to the shortage, families are getting the highest priority. There are big turnouts for open inspections of rental properties too and what I’m hearing from current renters, the situation isn’t improving. About 9 years ago I had to move into a rental and it took ages to find something. I submitted several applications and never got a response. Several agents wouldn’t return my calls or respond to emails, so presumably they had no shortage of potential tenants. In the end, a friend purchased an investment property and was looking for a tenant, so that saved me from having to compete with everyone else via the real estate agents.

  23. Kaye Lee

    For some reason, the Master Builders Association is threatening a massive campaign against Labor’s proposed negative gearing changes. This seems stupid to me because restricting it to new dwellings would mean a boost to construction. These Liberal party stooges seem incapable of anything but opposition.

  24. Lawrence S. Roberts

    Lovely. Let us give them 20 years of Menzies Taxes.

  25. diannaart

    Speaking of Con-jobs, Tim Wilson has resigned from his well paid position at the Human Rights Commission to seek pre-selection for Andrew Robb’s old job.

    Quelle surprise!

  26. Terry2

    kaye

    I see that Kate Carnell – from whom we hear way too much – is proposing that pensioners only be paid the pension as a ‘loan’ against the equity of their family home, to be repaid on their demise: a government run reverse mortgage.

    According to Kate this is equitable otherwise the home would remain in the estate of the pensioner and – horror of horrors – be inherited by the next generation.

    Whilst I don’t like Carnell or her thought bubbles surely what she is really proposing is an inheritance tax

  27. Lee

    “Whilst I don’t like Carnell or her thought bubbles surely what she is really proposing is an inheritance tax”

    An inheritance tax that only applies to those on lower incomes.

  28. Kaye Lee

    Kate Carnell is a dangerous person. She talks absolute crap.

    “The Government should consider transforming pension payments to owner-occupiers into a loan that is recoverable against their property when it is sold, potentially with a residual value that would allow pensioners to access equity for other purposes, such as aged care. While retirees should be able to maintain a minimum residual value, at present very little of the equity in owner-occupied housing is being drawn down for other purposes.

    In addition, abolishing Family Tax Benefit Part B could save $13.9 billion over four years and means testing the Child Care Rebate could save $250 million per year.

    Controlling public spending can boost economic growth. These deficits mark a clear departure from the discipline of earlier decades, putting upward pressure on borrowing costs and constraining the ability of the private sector to access capital.”

    Interest rates are at record lows you silly woman! And if your clients paid the tax they are supposed to, and stopped expecting government subsidies, we wouldn’t have a deficit! You are the archetypal con artist, and not a very bright one at that.

  29. Michael

    Would that matter for $xxxK pa?

  30. Wally

    Has Kate Carnell considered that many pensioners do not own a house?

    Presented with this smarter home owners would form a family trust that took ownership of their home and when they retired they could claim rent assistance as well as the pension. Ultimately the public purse could be worse off with accountants and solicitors benefitting most.

  31. Lee

    “Has Kate Carnell considered that many pensioners do not own a house?”

    Oh I’m sure she has. She probably considers that those who don’t own a house should not receive a pension.

  32. silkworm

    “And if your clients paid the tax they are supposed to, and stopped expecting government subsidies, we wouldn’t have a deficit!”

    Is there anyone better versed in MMT who would like to take a crack at this?

  33. mark delmege

    In reality negative gearing and the like is a HANDOUT to the LEANERS much like overly generous super deductions are for the mega wealthy.

  34. Michael

    Can we start a new topic on negative gearing, starting what it is, how it works, tax treatment, effect on supply and demand of housing?

  35. mark delmege

    fair comment Michael

  36. michaelattoowoomba

    Great article,again,K L, ,I followed link ,watched Cassidy puff piece,{mute on }still recognised manipulation of truth { her lips were moving and the well practised liabrill smirk }.Liabrills do not lie??Do they?? I think the over used table must be a very unusual shape.

  37. Wally

    Michael

    “Can we start a new topic on negative gearing, starting what it is, how it works, tax treatment, effect on supply and demand of housing?”

    Great suggestion in particular informing people of how negative gearing works, too many opponents of negative gearing do not understand how it works. Some believe that the cost of the house is subsidised by tax deductions and lose sight of the fact that capital gains tax is paid on the profit at the end but unfortunately capital gains is only levied on 50% of profit at the moment. Scrupulous investors put profits straight into superannuation and pay no capital gains tax at all. Capital gains and superannuation are the areas that need to be changed, negative gearing itself has some benefits such as providing rental accommodation at a reasonable price. Changing negative gearing laws has the potential to be detrimental to renters, dramatically increase government rent assistance payments and placing huge demand on public housing.

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