If you are convinced of the validity of your argument then you should be truthful in prosecuting it. And that is not happening in the debate about company tax cuts.
In March, the Business Council of Australia released a letter signed by 10 senior executives saying the tax plan was “urgent and vital” for keeping Australia competitive.
The irony is that five of the companies who were represented in the letter paid no tax in 2015-16. Legally.
And that is because, as with most countries whose headline rate of corporate tax is comparatively high, there are more generous deductions or other ways for companies to lower their tax rate.
Whilst a rate of 30% is at the higher end of the scale, the average rate of corporate tax in Australia is much lower at 17% and the effective rate (ie the average rate at which pre-tax profits are actually taxed) is lower again at 10.4%.
Some reasons for the lower average rate (which is very competitive) are Australia’s generous interpretation of transfer pricing legislation enabling companies to transfer profits to lower tax jurisdictions, our relatively generous R&D concessions enabling companies to get tax credits for money spent on R&D, and our dividend imputation system where companies get franking credits for tax they pay and can pass these on to domestic shareholders.
The real problem facing this country is not company profits – they are at record highs. The issues holding us back are wage stagnation and inadequate welfare. Households have dangerously high debt levels, energy prices continue to soar, and housing is unaffordable where the jobs are.
In a speech to the National Press Club, even Deloitte economist Chris Richardson, a man the government often quotes, said that fixing “unnecessarily cruel” dole payments is a more urgent priority than budget repair.
The BCA agrees, or at least they used to. In May 2013, Jennifer Westacott called for an urgent review of the Newstart payment, arguing the payments must be increased to avoid trapping jobseekers in entrenched disadvantage.
In 2016, KPMG also called for an increase to Newstart payments saying that, not only were the inadequate payments an impediment to the ability to be job ready, they also encouraged people to either seek higher income support from a disability pension or it locked people into dangerous or exploitative jobs because they were too scared to quit.
The government is counting on wages to increase but there is no evidence, from anywhere, that this will naturally follow company tax cuts. When asked to provide assurances, big business starts backpedalling saying it will be a very long time before that might happen. Well we can’t afford to wait a decade in the hope that they might decide to share their increased profits with their employees.
A more sensible approach might be to reduce (or eliminate) payroll taxes. This is a real disincentive to hiring more people or increasing their wages because companies must pay a percentage of their total wage bill in taxation.
In the recent Victorian budget, they cut payroll taxes for regional businesses from 3.65 per cent to 2.45 per cent which they hope will “slash costs for about 4000 country businesses, create jobs and encourage people to move to regional Victoria.” They also lifted the threshold at which the tax kicks in “providing tax relief for about 38000 businesses right across the State.”
With corporate interest rates at record lows and profits at record highs, investment managers say their clients have plenty of money ready to invest. That is not the problem. A lack of demand and lack of policy certainty are the real impediments to investment.
But don’t expect any action on the real problems from a government who parrots what the kids at the IPA learned from their Tea Party mentors with the view to increasing the wealth of their donors.