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.
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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