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Incentives – When You Think About It, It’s Not One!

Tax is a disincentive to working. We’ve heard that often from the Liberals. If taxes are too high, people have no won’t want to work. So, if we lower the top tax rate, then people are more likely to want to work extra hours.

So far, so good… I mean, ignoring the fact that very few workers get to pick and choose their hours, I can see how that works.

Moving on…

Let’s imagine I’m running a small business and paying company tax. Let’s ignore the actual rate of company tax for the moment, because I’m trying to make a point and actual figures don’t allow me to make it as clearly as I’d like to. Ok, you may think that this is fundamentally flawed way of arguing, but if you’ve got a problem with it, take it up with the current Liberal Party who do it on a regular basis.

Let’s say that company tax is 47%. Let’s say that I run a shop and it’s earning enough to support me working five days, so I employ one of my employees to work on Friday and Saturday because I’d rather have a couple of days off (and, just to sound like a real business owner, penalty rates are far too high on Sunday so I work then). And while I can take the cost of the worker off my profits meaning I that I pay less tax, when I work, I’m only earning about half of the money I take.

Suddenly the Treasurer lowers my tax rate to 10%. Well, I suddenly have the potential to earn a lot more by working an extra day or two. And reducing my profits by employing someone on those days isn’t half so appealing when it’s money that I won’t earn.

Ok, the cut in company tax is nowhere near the 37% I’ve used in this example, but the principle remains the same. Turnbull, Morrison and their mates are arguing that if I pay less in tax then I’m more likely to employ someone with the money I’m saving, but in the case of many businesses, I’m more likely to say I’m better off holding on to my money.

Of course I’m not an economist so maybe I don’t understand their plan for jobs and growth.

 

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22 comments

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  1. Keitha Granville

    perfectly explained. I want a business owner to put up their hand and tell me how many extra people they will put on staff after the lowering of the tax rate AND the removal; of Sunday penalties.
    When that happens, we can make a more informed decision – but I’m not holding my breath. As per your example, the business will simpy keep the extra dollars profit.

  2. Carol Taylor

    If I was a business owner then lowering the company tax wouldn’t make one scrap of difference to whether I hired another employee or not – however having more people buy from me would. What I therefore really need is a group of well paid people in my community who will spend their $s on the things I sell. Is it just me, or spending $6,000 on a toaster would not provide my business with one single solitary additional customer, in fact if the LNP want to make most people poorer, then the odds are that I would end up with a $6,000 toaster and a whole lot fewer customers.

  3. Steve Laing - makeourvoiceheard.com

    Given that most small businesses don’t actually make a profit at all (most turning those profits into their own wages), then it wouldn’t matter if it was 10% or 90%.

    Most of the businesses I know are not having a problem growing because of lack of resources. They are having a problem going because demand has been crushed. Nobody is spending money. Everyone is feeling the pinch. No amount of tax concessions to people who aren’t prepared to spend are going to resolve this problem.

    Perhaps giving business a concession with the instructions that they MUST spend it with an Australian business might do the trick, but Liberals don’t believe in such obvious stimulus packages (unless it is to buy submarines, and thus votes, of course).

  4. Rossleigh

    True, Steve, but I was operating in the hypothetical world that the Liberals love to live in, and merely pointing out that even in that world their theory doesn’t make sense!
    You know the sort of thing, the world where Labor had a Budget emergency because they were “spending too much”, but the current government doesn’t have a problem because they’d like to cut spending even though they haven’t…

  5. Wayne Turner

    “Jobs and growth” is just another lying slogan to con the ignorant bogan.

    It’s crap just like their LIE of “trickle down effect”.

    It’s just a BRIBE for their mates in business to keep supporting/voting for them,with no proof with what the employers will do with the pay cut (pocket it most likely).

  6. SGB

    I have had similar discussions with people on facebook, who are telling me they are in small business, when we get to that inevitable point where I ask how many more sales does it take, to employ one extra person, the answer is never given just more deflection.

  7. Michael

    Ask our $200M Malcolm, did he wait for the tax rate to be reduced before he employed additional employees?

  8. Matthew Oborne

    perhaps they should pay their tax and stop trickling on us.

  9. Judith W

    Why is it that when the government “taxes” someone on Centrelink at the rate of 50% it’s supposed to be an incentive to work more, but they lower the tax for higher income workers saying that high taxes are a disincentive to work?

  10. The Written Word

    I was a small business owner and a tax cut wouldn’t have helped me hire another employee. People with available spare cash buying more of your product so that you’ve so much work to do you need an extra pair of hand is what justifies hiring more people.

  11. Gangey1959

    TWW says it all.
    In the middle 90’s I was busy enough to need a couple of workers to cover the extra workload that I had, and I paid them pretty well for their skills.
    FTA’s killed the need for my printing, because my clients could get their finished products from offshore for the same cost as I could get an unprinted garment, so I went off to work, and my assistants became out of work.
    457’s meant that I became redundant because I didn’t have the right language skills to suit the new business owners, so for the last 3 years I’ve been out of work.
    A $6, or $10, or whatever per week tax cut makes so much more difference at the bottom end than it does to someone on $1900+ per week.
    Screw you moronscum, and you too cash. The two of you haven’t got the brains god put into potatoes.
    You think that we don’t know that your stupid balance the budget bullshit can’t handle a tax cut for the masses on the basic (or lower) wage, it can only deal with a minor cut to the few at the top end who will vote for you anyway.
    I just hope I get to meet you in the street between now and July 2. You’d better have some good minders.

  12. Max Gross

    LNP knobs and growths!

  13. Zathras

    The relationship between tax and jobs is as phoney as the one between penalty rates and jobs.
    A business employs the number of staff it needs, not the number it can afford.
    Business is about maximum profit for minimum cost and has never been a charitable scheme to soak up unemployed people.

  14. Peter F

    G59 – Well said. How is it that these selfish idiots are so out of touch? If they had been in government when the GFC hit, we would have been a writeoff. They seem to be achieving this now anyway.

  15. Andreas Bimba

    Why do we have such idiots and crooks in government? The ALP are much the same (balanced budgets, TPP, FTA’s, globalisation, more mega coal mines, off shore processing, abandon manufacturing and the car industry, anti terrorism/civil rights reductions, subservience to the big end of town, political bribes, concentrated and corrupt mass media, unemployment, neoliberalism and so on) but with a mask of better social and environmental policy. Don’t vote for them!

    NEVER VOTE FOR THE LIBS/NATS OR THE ALP.

  16. Shaun Newman

    I worked or should I say I was coerced into working 60 hour weeks for 20 odd years by my last employer, unpaid overtime after 38 hours, all the reward I received was a complete nervous breakdown which has rendered me incapable of working since that time.

  17. Florence nee Fedup

    It is all about demand. Trickle up does indeed work. Trickle down has over decades proved to be A furthy.

  18. Don A Kelly

    Neoliberalism has taken over the planet. I have just finished watching a documentary called “The True Cost” and I thoroughly recommend its viewing by everyone. Fashion today is the second largest polluting industry on earth. Second only to oil. When everything is concentrated on making profits for the big corporations what you see is that human rights, the environment and worker’s rights get lost altogether. You see that workers are increasingly exploited because the price of everything is pushed down and down, just to satisfy this impulse to accumulate capital. This leads to the mass impoverishment of hundreds of millions of people around the world.
    We need to acknowledge in the fashion industry that human capital is part of this miraculous formula. Without cheap female labour it would not be generating the profits that it is. This needs to be acknowledged, it needs to be dealt with and those people need to be rewarded instead of exploited.
    This has been slightly off topic but there is an old expression that I haven’t heard for some time: “One man’s gain is another man’s loss, dollar for dollar” The previous Treasurer (Hockey) said there was a budget ’emergency’ so they cut funding to all types of services – they raised costs for the poor – then they cut taxes for the rich. Gifting $9 billion to the RBA, The only institute that doesn’t need reserves since they are the issuers of the currency, didn’t make sense and now Morrison wants to give tax cuts to people who don’t need it. The passed and present treasurers must be the worst treasures in history.
    Labor,when last in government saw the creation of 700,000 jobs. Since the Coalition has been in power the number of people without jobs or underemployed is the highest in 20 years and Bluescope Steel is facing closure in the Illawarra, with a loss of 5,000 jobs.
    Abbott said “don’t judge me by what I say, judge me by what I do”, Turnbull is following suit. Good thing we’ve got a government focused on jobs and growth.

  19. Florence nee Fedup

    When a child, I heard often talk about over production led to the depression. Even then this confused me. No was buying, even everything was wearing out. No, demand existed but not means to meet it. No one has the money. Money had stopped going around as my father would say. Even though he survived as a cocky during the depression, he used to get angry when one said money was wasted. In his eyes, that could never occur, as it only works while it is going around. Didn’t add, but I am sure what he meant, making wealth on the way. He, like most of his generation, hate the banks, the money men.

  20. Carol Taylor

    From Mark Kenny in The Age:

    As Fairfax Media’s Peter Martin noted on Thursday, referring to the promised 25 per cent rate a decade from now: “It means most of the $8.2 billion per year tax cut, lands offshore, as a gift.”

    It’s worth repeating..most of the promised tax cut “lands offshore, as a gift”. This money, I read elsewhere is equivalent to our PBS but with only dubious worth to Australia.

  21. Andreas Bimba

    Florence, I think your Great Depression era father was right to hate the banks and I agree it’s all about enough money flowing around in the economy.

    The Wall Street speculators and banks created the 1920’s boom where excessive investments were made in production capacity because the stock market returns were good. When the production capacity eventually greatly exceeded the consumption capacity, as wages didn’t keep pace, reality hit with a sledge hammer with the 1929 Wall Street crash, also bringing down much of the rest of the capitalist world. The Great Depression then continued on for about 10 years producing appalling levels of unemployment in an era without social support. FDR’s ‘New Deal’ of deficit spending and higher wages gradually reduced unemployment and then WW2 completed the economic recovery. The US and most Western governments then continued with moderate deficit spending up to and including the Reagan era. Reagan actually stimulated the US economy with massive defence spending increases but in other areas such as deregulation and social welfare cuts, he began to implement neoliberalism. Thatcher and Fraser/Hawke followed this trend.

    Nearly all successive Western governments both of the left and the right have then steadily implemented more and more aspects of neoliberalism where financial deregulation has increased fraud and instability, government services have been privatised usually increasing costs for consumers, corporate monopolies have flourished (e.g. banks/super/insurance) and government spending austerity, deficit reductions, globalisation and destruction of unions and worker protections have led to wage reductions and economic stagnation. Some economic sectors such as health care have grown significantly however.

    No wonder Australia’s manufacturing industry has steadily shrunk from 14% of GDP in the mid 1970’s to about 6% now, caught between constrained local demand and the near total removal of import trade barriers.

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