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The dishonesty of the company tax cut debate

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.


15 comments

  1. Andrew Smith

    Agree, however what people in Australia miss is that any corporate tax cuts would give significant advantage to local subsidiaries of global and especially US corporates, in addition to those in the grey area offshore eg. gas projects; think it’s much to do with the efficient or economic movement of profits across borders and low or no taxes in general.

    Ironically some of the same old fossil fuel related corporates or oligarchs have long supported nativist anti-globalistion sentiments to both preclude competition and preserve their own global infrastructure; very clever politically and media wise ‘look over there’.

  2. Florence Howarth

    The cutting of company tax has little to do with economics. All to do with ideology. The creed of small government, low taxes. They don’t see people as being their business. Business free of all regulations, free to do as they wish. Have been successful since Howard of achieving their aims. Time to fight back for a government of the people, by the people, for the people.

  3. townsvilleblog

    Businesses pay to little tax as it is. Why should working people subsidize business when business can claim just about everything on tax, yet workers can claim almost nothing, and for the privilege receive ‘starvation’ wages for their efforts? Workers are encouraged to do a little extra time at work for no extra pay, are exploited and denigrated in some cases on a daily basis and yet this Liberal Party ethos of placing business people socially above working people does not stand up to examination.

  4. townsvilleblog

    Andrew Smith, yes so very true, the mental health problem of insatiable greed drives these businesses, fairness to employees is a far flung concept, which is so very unAustralian we are the land of “the fair go for all.”.

  5. townsvilleblog

    Florence Howarth I couldn’t agree more! Australian workers should get behind the ACTU campaign being run by Sally McManus.

  6. Terry2

    I heard Jennifer Westacott this morning talking to Fran Kelly..

    Westacott is reluctant to concede that the $200,000 levy on BCA members is to create a fighting fund to re-elect the Liberal Party or to ensure that the corporate tax cuts get through but there doesn’t seem to be any other purpose does there ?
    If the CFMEU were to impose an election fighting fund on their members to support a Labor victory we would never hear the end of it.

    She sort of let the cat out of the bag when she said it’s not all about company tax cuts, the BCA also wants to see the GST revisited : does that mean the BCA want to reduce the GST ? Not on your nelly !
    They want to broaden the base and increase the tax. So, on the one hand they want companies to pay less tax and they want consumers to pay more ! Sort of heads you lose, tails I win approach.

    It’s a bit ominous that the BCA were meeting with the now defunct Cambridge Analytica in Washington last year (we meet lots of people says Westacott). https://www.youtube.com/watch?v=cy-9iciNF1A

    Just at a time when we were trying to rid our democracy of external political influences and cashed up associated entities, the BCA has now well and truly signed up with Newscorp to try and keep the LNP in power.

    This is going to be a very dirty election – bring it on !

  7. Kaye Lee

    Lee Rhiannon asked “Can you give us an example of another country where tax cuts have resulted in wage rises?”

    After years of campaigning, Jennifer Westacott was unable to answer and took the question on notice which gives you some idea of how little they have let facts intrude into their argument.

    In its follow-up submission, the BCA cites a study of 55,000 companies in nine European countries between 1996 and 2003, which concluded that a rise of $1 in corporate tax would reduce wages by 49 cents. Then the BCA writes: “This implies a 49 cent gain in wages for a $1 reduction in corporate tax”. Keneally tells The Monthly Today that the argument doesn’t follow at all. “That they’re bad at politics is not surprising. That they’re bad at economics is stunning.”

    https://www.themonthly.com.au/today/paddy-manning/2018/01/2018/1525153880/common-good-not

  8. Glenn Barry

    Westacott is obscenely disingenuous and has quite frankly set herself a fools errand which speaks volumes about her lack of judgement and lack of situational awareness

  9. paul walter

    Crafty old toad, isn’t she?

  10. liblover

    I’ve been on this site for a few years now and over that time the theme hasn’t changed.Icould tune out for 12 months and things wouldn’t have changed.We are preaching to the converted.Having read lots of articles of the ins and outs of a ducks arse and not having the intelligence to fully understand the intricacies and terminologies of whats been quoted i just rely on sense of fair play as to whom i vote for.Having said that i have been enlightened and inspired by what i’ve read here.We nearly all agree we will get a fairer outcome under Labor.The hurdles i see in confronting Labor…..biased media,apathetic Australian,the greedy selfish voter(what’s in it for me,not what’s fair for all) and the uneducated voter.I suggest, as others have that Kaye-Lee’s (hope i got that right) list of broken promises should be sent to one and all.With all the bad polling results Labor should be a lot further ahead,we need someone to promote a clear and simple message,that simple people,such as myself can grasp,that listof Kaye-Lee’s can be a reference point….if in doubt check the list.I know it seems simplistic but it cuts through.Bill needs to highlight these hyporacies in the parliament,apply some pressure,can be surprising what pressure can do,past leaders would have had a field day with this list.They’re getting free ride,along with all the other freebies.Anyway as a a golfer always living in hope.

  11. paul walter

    Anyway, the despicable Julia Banks MHR has put even Westacott in the shade. Even Westacott herself has distanced herself from the airhead’s comments about cruising on $40 a day.

    Playing silly games with people’s lives…

  12. MikeW

    Over one third of companies in Australia pay zero tax, those that do pay 30% pay very little (after the books are cooked) compared to their gross earnings.
    I’m all for tax cuts for companies operating in Australia, in fact I think it should be around 5% of their gross, that way the whole damn lot of them will be paying something.

  13. Andreas

    @MikeW:
    I disagree. 30% turnover tax would do the trick, before any profit shifting to the Cayman Islands or such occurs. and while we’re at it, the Tax Laws require a massive overhaul…

  14. Glenn Barry

    Paul Walter, you mean crafty as in likes knitting, perhaps does scrapbooking and flower arranging?

  15. New England Cocky

    @MikeW: I am reminded that Joh suggested a flat tax for corporations without any tax deductions to simplify the Taxation Act and essentially make the tax accountants redundant.

    I think the proposal was a flat 1-2% of gross earnings which would make international corporations pay something rather than zero.

    Remember, the GST on bread will generate far more revenue that the GST on the number of Ferraris or Bentleys or Aston Martins or other male “dream cars” imported into Australia in any year, but it will be paid by the workers, the sick, the disabled and the aged all of whom can least afford it.

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