Article - Cutting corporate tax won't create jobs. It's yesterday's solution to our problems




Australian jobs have never faced a greater threat than they do under Malcolm Turnbull’s government. Almost 40 years after trickle-down economics was introduced in the US and UK under Ronald Reagan and Margaret Thatcher, Malcolm Turnbull has sought to import an even purer form of this foreign product into Australia.

If Turnbull wanted to destroy Australian jobs, cripple economic growth and entrench inequality, his unfunded $50bn corporate tax cut would be a fantastic way to start. This toxic foreign import follows the voodoo logic that “tax cuts for the wealthy will drive economic growth and improve the lives of everyone in the community, from the top down”.

As the reigns of Reagan and Thatcher will attest, the reality couldn’t be more different.

No jobs and growth joy for Coalition in latest investment figures.

One of the policies I was associated with during my time as treasurer was an attempt to lower Australia’s corporate tax rate, so you would think I should be a supporter of Malcolm Turnbull’s decision to cut corporate taxes.

I’m not.

Along the way in a long political life, you learn a few things, and this has got to count as the biggest thing I learnt: corporate tax cuts are yesterday’s solution to today’s problems – their economics don’t work, and arguably their politics never did.

Our efforts in government were of course part of an entirely different context in which we were trying to manage the stresses of a two-speed economy by placing more weight on resource rent taxes and less on the corporate rate, but let’s put that aside for the moment.

As a solution to Australia’s current jobs and growth challenges, a corporate tax cut doesn’t make it even into the top 10 of sensible policy responses.

Turnbull runs a classic trickle-down argument that his policy will restore Australia’s appeal to foreign investors. Cutting the corporate tax rate from 30% to 25%, a policy championed by the Business Council of Australia, would indeed align Australia with the average of its OECD counterparts. But conditions apply …

In a series of tax transparency reports legislated by Labor in 2013 and released earlier this year, the Australian Taxation Office revealed that, courtesy of deductions, deferred losses, minimisation and evasion, public companies in Australia pay an average of 24% on their taxable income, while private companies pay an average of just 19%.

Although most Australian businesses pay their fair share of taxes, these shocking figures shred the case that Turnbull’s company tax cut has anything to do with attracting foreign investment.

To illustrate, consider a street lined with private companies, each making more than $200m a year. A prospective investor strolling down this street has a one in three chance of being courted by a company which pays zero corporate tax in Australia. Unaware of a given company’s tax arrangements, our investor is likely to allocate funds where returns will be maximised. Other factors being equal, the companies promising the highest returns are those most likely to be avoiding their tax responsibilities in Australia.

Company tax cuts are not a knight in shining armour to save the economy

The case for Turnbull’s company tax cut in promoting “jobs and growth” rapidly evaporates once we expose its trickle-down foundations. If jobs and growth aren’t materialising at Australia’s effective company tax rates of 24% and 19%, how will a cut in the headline rate make a difference? And will those companies who currently pay no tax, at any rate, suddenly be inspired to hire?

These skewed policy priorities are not cost-free – everyday workers without access to Panamanian tax havens or corporate tax minimisation opportunities look at policies like this and see the deck is loaded against them.

Jobs, growth and competitiveness don’t “trickle down” from corporate tax rate tinkering. Instead, they stream out from sustained, long-term investment by both the government and the private sector.

This article was originally published on the Guardian Australia