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It’s a pity our Treasurer does not recognise our value and price it accordingly

As parliament resumes, the Coalition will be aggressively pushing their company tax cuts. Their branding has always been “jobs and growth” but there has been a subtle change lately to stressing the need to attract “foreign investment”.

The Australia Institute has just released research examining the reality about foreign investment by looking at the facts – an increasingly rare approach now that governments don’t bother with modelling .

Because of Australia’s unique system of dividend imputation, any reduction in company tax would reduce the amount withheld on behalf of dividend recipients and so increase the amount shareholders will have to ‘top up’ at tax time. Australian investors will receive no benefit.

This does not apply to foreign shareholders who will unambiguously benefit from a tax cut which is probably why Morrison is now trying to sell the idea that this would attract foreign investment. But would reducing taxes make any difference?

By value 71 per cent of foreign investment applications come from countries with company tax rates lower than Australia’s rate and by number a large 97 per cent come from countries with company tax rates lower than Australia’s rate. All of this raises the question – if Australia is already successful at attracting foreign investment why would we give tax cuts to foreigners?

Throughout the whole debate it is assumed that company tax rates are the critical variable affecting investment. However, any returns to the ultimate investors will depend on the individual tax system as well as the company tax and the interaction between the two. When we look at company tax alone Australia has the equal fifth highest among OECD countries yet when we examine the implied total tax rate Australia falls to fourteenth and is only marginally above countries such as the UK.

There has been no correlation in the past between decreases in company tax rate and the rate of foreign investment.

Michael Keating AC was formerly Secretary, Department of Finance and Secretary, Department of Prime Minister and Cabinet. He agrees the company tax cut will make no difference

Frankly it is hard to think of reasons why this extension of the company tax cut would represent value for money, as it is unlikely to make much difference to investment nor growth. Indeed, company tax has been cut by a lot over the last few decades in a lot of countries, but in no country was there a significant impact on investment, output or employment. Second, the Government’s own modelling shows that this company tax cut would only increase GDP by 1% after as many as 20 years – which is an infinitesimal impact in the foreseeable future.

You cannot tax a profitable business into being unprofitable. Australia is an attractive place to invest because we provide a well-educated, skilled, healthy workforce, a stable social and political environment (comparatively), a strong legal and judicial system and established infrastructure.

We have invested a lot of money to provide that environment and businesses have seen the value in taking advantage of the quality labour, the transport infrastructure, and the stability our society provides.

It’s a pity our Treasurer does not recognise our value and price it accordingly.

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11 comments

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  1. John Kelly

    Company tax rates are not what drives foreign investment anymore than local investment. It is the return on investment that companies look for. They have minimum ROIs and as long as the deal is above the minimum the proposal is on the table. Subsequent considerations are, political stability, workforce availability, language spoken. Tax rates fall well down the list.

  2. Kaye Lee

    Why doesn’t Labor ever say any of this John? It would be far more effective than digs about harbourside mansions.

  3. Ricardo29

    The ABC pointed out that it was Peta Credlin who coined the reference to Mr Harbourside Mansion though, of course it helps Turnbull (maybe) to blame Bill for it. I am not sure Bill has atually used the term.

  4. Steve Laing

    I truly believe that they have nothing else. If it helps them get a job once they leave Parliament, job done. If company tax cuts worked as they promise, surely the small business sector would have picked up to reflect the tax cut nearly two years ago. The fact that it hasn’t says it all. The fact that no MSM journo hasn’t asked that question says it all too. More post truth.

  5. Terry2

    John Kelly

    “political Stability” being a factor in considering foreign investment options may be why there are some 12,000 corporations domiciled in Ugland House in the Cayman Islands or perhaps not 🙂

  6. Miriam English

    And it’s not as if this all hasn’t been known for years. Richard Florida has studied cities in USA and how their economies work — how they succeed or fail at attracting investment and jobs. It always comes down to exactly the things Kaye said above, along with one important addition: a diverse population. He found that you could predict how successful a city would be by how well or badly it treated its minorities, in fact he found a simple, reliable barometer of the ability of a city to attract jobs and investment was the visibility of LGBT people. Improve the lives of the people living in a place, increase their educational standing, make it a pleasant, welcoming place to live, and businesses fall over themselves to set up shop there.

    Of course you could instead reduce the lives of citizens to those of victims, begging for any scrap to survive, working for starvation wages as unskilled labor. That brings businesses too, but of course the minute somewhere else has cheaper wages those opportunists leave. And as soon as automation becomes easy and cheap enough all those jobs will be lost anyway.

    If you want long-term business without turning your country into a hell-hole then the direction to take is clear.

  7. Kaye Lee

    UAE entities hold significant investments in Australia, including in the agribusiness, tourism, health and aged care and resources sectors.

    In 2015, UAE investment in Australia was estimated at $12.5 billion according to ABS data. The Abu Dhabi Investment Authority (ADIA), the world’s second largest sovereign wealth fund, became Australia’s largest hotel owner in late 2013, acquiring 31 Accor-branded hotels. It has also invested in ports, the TransGrid electricity network and the Queensland Motorway project. Other UAE sovereign wealth funds also have assets and are examining other investment opportunities in Australia.

    The company tax rate in the UAE is 0% but they still seem to want to invest here.

  8. Phil

    Kaye Lee quite rightly argues – “Australia is an attractive place to invest because we provide a well-educated, skilled, healthy workforce, a stable social and political environment (comparatively), a strong legal and judicial system and established infrastructure.

    Pause – now let’s see that again just so it sinks in:

    “…a well-educated, skilled, healthy workforce, a stable social and political environment (comparatively), a strong legal and judicial system and established infrastructure”

    Yet the LNP would kill that education system and make it a for profit charter junk like America.
    Yet the LNP would trash that healthy workforce by killing medicare through stealthy privatisation.
    Yet the LNP would destabilise the social web by attacking and dividing the welfare system and its recipients – a war on the poor
    Yet the LNP has corrupted and debased the once stable political system through the elevation of incompetence in the form of Abbott, Morrison, Dutton, Canavan et al
    Yet the LNP has damaged our legal system, trashed protocols and perverted justice at every opportunity.

    Then Kay Lee says:

    “We have invested a lot of money to provide that environment and businesses have seen the value in taking advantage of the quality labour, the transport infrastructure, and the stability our society provides”

    There you have it – in a nutshell – neat as pins and as close to the truth as one can get – and yet the Turnbull government literally hates ‘quality labour” it seethes with angst and detestation at the very existence of ‘quality labour’ – it wants to crush ‘quality labour’ because its business backers hate ‘quality labour’ – it wants cheap labour – acquiescent labour.

    Wake up LNP – Trump is showing you the way – he at least touts jobs for Americans – so why can’t we have jobs for Australians? End this foreign workers visa scam now – it is the Rhinehart and Forrest and Big Coal and the Supermarket chain and the Construction sector scam – if you don’t end this labour scam then expect a wipe out next election.

    As Kaye so rightly points out to Morrison – value Australia and value all that our nation has invested in. I don’t think Morrison has it in him – he’s too busy happy clapping.

  9. Jennifer Meyer-Smith

    Hear, hear Phil

  10. Mark

    Company tax cuts have nothing to do with wanting to improve the country.
    It’s about Liberal ideology and looking after their mates – making them richer.
    GDP growth won’t change and they will still make more excuses when nothing changes.
    It’s all a game of shifting wealth from wages to capital.

  11. Alan Baird

    Damn fine article LADEN with TELLING points. I am utterly fed up with this “well y’put the company tax cuts in this end and it MAGICALLY spits out pay rises ALL OVER THE NATION at the poor end. As if! I have NEVER seen one half-persuasive conservative give a near-believable account of how this voodoo takes place. What also irritates (intensely) is that quite a number of companies (incl. the one this mini-diatribe is typed upon) avoid tax, effectively making the proposed tax cuts rub salt (with broken glass inclusions) into the wound. Make the bastards pay in the location they made the readies! (But we can’t, honest!) Yet we’re STILL sold the folderol that they’ll go AWAY. These cats come back ‘cos they couldn’t (and wouldn’t) stay away ScoMo you dill! We’re STILL not fooled. Again.

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