Only business tax plan gets the nation back into the game
20 February 2018
This opinion article by Tony Shepherd was published in the Australian Financial Review on 20 February 2018.
Australian businesses are backing a reduction in the company tax rate because it's good for the nation; an uncompetitive tax regime is a burden on job creation, exports, innovation and investment. It stifles creativity, entrepreneurialism, reward for effort, and drags Australians down.
When readers of The Australian Financial Review turn to the opinion pages, they don't expect to be greeted with personal invective dressed up with half-baked economic analysis.
Tuesday's column by the Australia's Institute's Richard Denniss, a former adviser to the Australian Greens, unleashed another attack on the Business Council over its support for company tax cuts. It was short on fact and big on rhetoric.
The last thing Australians need as they face enormous challenges and concerns over their own financial security is to be bombarded by conveniently massaged half-truths propping up the traditional Green anti-business agenda.
Mr Denniss tries to have it both ways, railing against 30 years of privatisation, deregulation (if only) and trickle-down economics while, at the same time, celebrating a world record 26 years of uninterrupted growth. Where does he think this growth comes from? The reality is that Australia's very prosperity comes from economic reforms starting in the 1980s. That plus the often-demonised resources sector.
What we are concerned about is ensuring the economy continues to thrive and real, permanent. full-time jobs are created.
This rash anti-business sentiment misleads the community and is fuelled by inconsistent ideology, not facts.
We welcome open debate but it must be fact-based and not personal; play the ball and not the woman and man. We must discuss the best ways to ensure the economy can continue to grow with an ageing population while continuing to compete globally. We have great faith in Australians and their ability to do it.
Boost to business investment
But just don't take my word for it. An OECD study last month couldn't be more clear. It stated company tax cuts brought benefits to people at all income levels and did not unfairly favour the rich.
The influential Paris-based body backed the argument that cutting the tax rate for all companies would boost business investment.
"Lowering the effective rate of corporate income tax (as part of a tax shift) can deliver substantial income gains for all with few consequences for the distribution of income," the study said. "No statistically significant effect on the income distribution appears for company income tax."
There's nothing self-serving about giving businesses the firepower to create jobs, attract investment, expand, improve productivity and wages growth, innovate and export.
And the benefits flow to all. Treasury modelling shows more than half the benefits from reducing the company tax rate to 25 per cent flow to Australian workers and households.
But don't just take its word for it. Listen to Richard Holden, a leading economist whose work was used by Labor to support its negative gearing policy.
Writing in The Australian Financial Review late last month, Holden slammed resistance to company tax cuts, arguing they helped to redress economic inequality.
Holden cited a landmark study that showed young people and those with low skills were the primary winners through higher wages.
The research published in the American Economic Review looked at Germany's labour market, which has a similar centralised bargaining system to Australia's.
"The best, most credible evidence we have suggests that a cut in the Australian company tax rate is not a gift to the so-called 'big end of town'," Holden, a professor of economics at UNSW Business School, said. "It provides a benefit to businesses and workers in fairly equal measure. And the benefits to workers tend to flow disproportionately to women, young people, and the less skilled."
Good for companies, shareholders and workers
Deloitte Access Economics partner Chris Richardson, considered the best watcher of the federal budget, has said reducing the corporate tax rate for all businesses to 25 per cent would be simultaneously good for companies, shareholders and workers.
Richardson added the whole point of company tax reform was that it increased the size of the pie so everyone had more to spend, at which stage you could have higher wages and higher profits.
"This is not a zero-sum game in which, if companies win, workers lose," Richardson said. He argued Australia could be more prosperous and produce a bigger pie if we taxed smarter.
And lastly take the IMF. Last year it confirmed that the US tax cuts would result in investment being sucked into the US from global markets on a huge scale.
When critics attack business, who are they really going after?
They're attacking the supermarket shop assistants, lawyers, the airport baggage handlers and shareholders. They're undermining the people who wake early, work hard and keep this country moving.
Mr Denniss cites my role in leading Tony Abbott's Commission of Audit and the drive to reduce unaffordable, wasteful and unnecessary government expenditure.
There's nothing inconsistent in arguing for restraint as well as company tax cuts. In fact, if a recalcitrant Senate will not support sensible expenditure reduction, then the only way to bring the budget back to surplus is to stimulate growth. The European tax and spend model has been proven to be a colossal failure.
These modest tax cuts are already factored into the budget, which is forecast to return to surplus in 2020-21. It's not Trumpenomics.
After all, no other plan exists that would deliver such substantial and permanent benefits to all Australians, including an extra $18 billion a year in GDP, an additional $4 billion in tax revenue and a 2.6 per cent lift in investment.
No other plan gets the nation back in the game. This is not a giveaway, it's about ensuring Australia is globally competitive.