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Thursday, 9 February 2017
Page: 564

Dr LEIGH (Fenner) (16:15): Not only do most of the first-round benefits go overseas, but there will even be some cases in which US-based multinationals repatriate their profits, paying the difference between their higher rate and our lower one. In such cases, an Australian company tax cut simply flows into the coffers of the US Treasury, meaning some of the reduced revenue from the Australian company tax cut would be available to be spent by the successors to President Trump—I say 'successors' because we are talking a very long time into the future, and I will come back to that issue.

Having enjoyed the first-round benefits of a company tax cut, the Treasury report then argues that foreign shareholders will respond to higher after-tax profits on their Australian investments. The theory goes that overseas shareholders then invest less in other countries and more in Australia. More investment, allegedly, means greater demand for land and labour. So, in the long run, land prices and wages are supposed to rise.

Of course, as Keynes famously put it, we are all dead in the long run, so it is worth thinking about how long we are talking about. The answer, typically, is seven to 10 years. Since the coalition's tax cut only reduces the tax rate on big business to 25 per cent on 1 July 2026, this means that the coalition is promising benefits that would accrue somewhere between 2033 and 2035. At that point, Prime Minister Turnbull would be in his late 70s and well on the way to becoming the longest-serving Prime Minister since Robert Menzies. As things currently stand, I think most commentators would say he would be lucky to last out this year!

But how big will the gains be? It depends on how you pay for the company tax cut. The Treasury report suggests that tax cuts could be funded by a nationwide land tax, higher personal income taxes or lower government spending. Given that the federal government has not levied a nationwide land tax since 1952, let us set that one aside. So that means you fund it either through less spending or higher income taxes.

According to Treasury, if you do it through less spending, the boost to households is 0.7 per cent. But there is a bit of a wrinkle in that. The Treasury report notes that it is important to recall that the modelling of 'government spending is assumed not to affect directly the welfare of households'. It also notes:

While this is a common modelling assumption, it ignores the fact that: government spending provides goods and services that would otherwise not be provided by the market sector; households derive direct utility from government spending; and infrastructure spending can improve market sector productivity.

So, in other words, if you believe that everything the Commonwealth spends on schools, hospitals and roads has no impact on the welfare of households, then you can believe that the benefit of a company tax cut funded by less government spending is as big as 0.7 per cent. If you do not, then it is smaller than 0.7 per cent.

We should also be wary of a government that claims that it is going to fund a company tax cut out of lower government spending, given that government spending, as a share of the economy, has gone up, not down, under the Abbott-Turnbull government. So, most likely, a company tax cut for big business would be funded by higher personal income taxes—in other words, taxes down on big business; taxes up on individual taxpayers. If you do it that way, the government's own modelling suggests that the benefit to households is 0.1 per cent—not annualised; total.

So how big is a gain in household incomes of 0.1 per cent? If you look at data going back to the early 1970s, you can roughly work out how rapidly household income has grown over that period. It turns out that it has risen by about 0.1 per cent per month. So in exchange for copping higher personal income taxes and a lower corporate tax rate, the government reckons that the most likely scenario is that households would get an extra month of household income growth. That is what the government's own modelling claims the benefit is.

This is at a time when wage growth is at a 30-year low, living standards are below where they were in 2013, inequality is at a 75-year high, the homeownership rate is at a 60-year low and the top one per cent have doubled their share of national income over the past generation. Yet the only economic plan that the government has is a plan which, according to the most likely estimate from their preferred modelling, delivers 0.1 per cent extra income to households in the mid-2030s. No wonder, when you look to independent commentators, they panned it. Ross Gittins says:

If you wanted to create jobs, cutting the tax on foreign investors isn't the way to do it.

Bernard Keane says:

It could be the greatest tax avoidance scam ever perpetrated …

If you want to do something to help business grow, then it makes more sense to invest in trained workers. Make sure that you have proper investment in infrastructure based on cost-benefit analysis and not on National Party pork-barrelling, that you have predictable politics, not the chopping and changing that we have seen from this government, a government led by a man who said he would never lead a party not as committed to climate change as he is but who now backs off from an emissions intensity scheme, even though his own Chief Scientist says it would decrease power prices and tackle emissions.

Labor supports a strong business sector, but we do not believe in quick sugar hits. The government has put in place a $20,000 instant asset write-off—not one like Labor's, which was ongoing, but one which cuts off at midnight on 30 June this year. That is no way to build long-term business growth in this country.