It is very telling that, when commissioning modelling for the economic effects of increasing GST and cutting income tax rates, the government didn’t bother getting any such modelling done on reducing company tax rates.
We are just supposed to accept that a cut in company tax rates would be beneficial to the economy and to workers.
Ian Narev, CEO of the Commonwealth Bank of Australia and chair of the BCA’s Economic Policy and Competitiveness Committee, has said: “Instinctively,….if you increase the GST and reduce corporate tax, you are undoubtedly going to stimulate some business investment. That is a clear phenomenon.”
The evidence shows otherwise.
The Australia Institute examined international and Australian data on tax rates and macroeconomic indicators and found no evidence of a link between corporate tax cuts and a ‘growth dividend’.
OECD data shows
- There is no correlation between corporate tax rates and economic growth in OECD countries.
- Countries with lower company tax rates have lower standards of living, measured as purchasing power of GDP per capita.
Historical data for Australia shows that
- Wages and mixed income has declined as a share of GDP as corporate taxes have been lowered.
- Average unemployment rates have risen as company tax rates have lowered.
- Growth in foreign investment as a share of GDP was strongest when Australia’s company taxes were highest.
Despite the steady reduction in company tax rates over the period since the 1980s, wages share of GDP has steadily fallen – by approximately 13 per cent.
Between 1950 and 1987, when the company tax rate was 40 to 49 per cent, the average unemployment rate was 3.3 per cent. In the period of 30 per cent tax rates since 1 July 2001 unemployment has averaged 5.4 per cent.
Australia receives a good deal of its foreign investment from countries in Asia and elsewhere that have significantly lower company tax rates.
Rather than just accepting what all the business lobby groups are telling us with no evidence to back up their claim that ‘tax cuts are good’, we should examine what really does promote growth and share the wealth more equitably.
The government has become fixated with startups but the truth is that 90% of them will fail. We have too many venture capitalists making short term decisions looking for a quick buck whilst asking for greater government protection. They should not be the ones influencing government policy because, when their sole aim is to maximise profit, they will never consider what is best for society.
According to TAI, Australia’s golden age of economic growth, 1945 to the 1970s, was backed by full employment policies and investment in infrastructure, education, science and technology.
Rather than company tax cuts, protection for risky investments, and issuing Entrepreneurs Visas, these are the building blocks that government should focus on.
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