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Emma Alberici: There's No Case For A Corporate Tax Cut When One in Five of Australia's Top Companies Don't Pay It
Emma Alberici: There's No Case For A Corporate Tax Cut When One in Five of Australia's Top Companies Don't Pay It
PHOTO: Qantas is about to clock its 10th year tax free, while its CEO Alan Joyce takes home a $24.6 million salary. (AAP: Joel Carrett)
There is no compelling evidence that giving the country's biggest RELATED STORY: Qantas and Foxtel among hundreds
companies a tax cut sees that money passed on to workers in the of companies paying no corporate tax
form of higher wages. RELATED STORY: Verrender: Who really wins in the
murky world of corporate tax cuts?
Treasury modelling relies on theories that belie the reality that's playing out
around the world. RELATED STORY: Fact check: Lowering Australia's
corporate tax rate
Since the peak of the commodities boom in 2011-12, profit margins have RELATED STORY: Trump just promised huge tax cuts.
risen to levels not seen since the early 2000s but wages growth has been But will they ever become a reality?
slower than at any time since the 1960s. MAP: Australia
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INFOGRAPHIC: Company profits are at their highest point since 2011 but wages have stagnated.
(The Conversation (ABS business indicator and wage price index))
It's also disingenuous to talk about a 30 per cent rate when so few companies pay anything like that thanks to tax
legislation that allows them to avoid paying corporate tax. Exclusive analysis released by ABC today reveals one in five of
Australia's top companies has paid zero tax for the past three years.
And while the Treasurer and Finance Minister warn that Australia's relatively high headline corporate tax rate means
Australia remains uncompetitive and companies will choose to invest in lower taxing countries, the facts don't bear that
out. Business investment in Australia has been at historically high levels over much of the past decade despite our
comparatively high headline corporate tax rate.
PHOTO: US President Donald Trump signed the tax bill in December, cutting corporate tax rate to 21 per cent from January. (AP: Evan Vucci)
In truth, businesses make decisions about where in the world to park their money based on myriad reasons, possibly least
of which is the headline corporate tax rate.
Will I be closer to my main customers? Where is the best talent located? What are the labour costs? How onerous are the
regulatory hurdles to investment? Is the culture and language easy to navigate? Is the country politically stable and is
there respect for the rule of law?
When Incitec Pivot chose to build a $1 billion factory in Louisiana rather than Australia, it did so due to America's strong
productivity levels and its speedy approvals processes. Tax was insignificant on the pros and cons list.
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High-profile chief executives like Qantas chief Alan Joyce are adamant that investment decisions rest largely on the rate of
a country's corporate tax. But it's hard to see how a lower tax rate is an incentive for investment when one in five of our
biggest companies haven't paid any corporate tax at all in at least three years.
Qantas is about to clock its 10th year tax free. Qantas won't pay tax again until its profits exceed the tax losses recorded
since 2010. Only when all the accumulated losses are offset will a lower tax rate mean a higher cash flow. Besides,
regardless of where the corporate tax rate sits, the airline has already indicated an intention to invest $3 billion across
2018 and 2019.
PHOTO: Qantas workers haven't seen the same boost to their pay as their boss. (Mick Tsikas: AAP)
The overwhelming benefit of higher profits flows to shareholders. A zero corporate tax bill at Qantas has certainly seen
one significant wage rise at the company — the chief executive's. The benefit to workers has been less pronounced.
According to the Australian Services Union, representing just under half of all Qantas workers, the average pay rises for
staff since the airline has returned to profitability have barely kept pace with inflation.
Alan Joyce, on the other hand, has seen his total salary close to double from $12.9 million in 2016 to $24.6 million last
year thanks to a huge jump in the value of shares provided as part of a bonus scheme.
Linda White, Assistant National Secretary of the Australian Services Union told the ABC she is far from convinced about
the value for workers of a corporate tax cut:
"While Qantas workers have seen pay rises of less than 3 per cent on average over the past decade, we've seen
the CEO's salary balloon to almost $100,000 a day — much more than most workers earn in a year. It doesn't
trickle down — it trickles up, and the rules need to change to give workers a better deal in this country."
Australia and Canada share a similar history and are both resource rich economies. Our financial and political systems are
also on par.
Canada cut its corporate tax rate from 42.4 per cent in 2000 to about 26 per cent in 2011, where it has remained. In 2000,
Australia cut its corporate tax rate from 34 per cent to its present 30 per cent.
Business investment rose in both countries during the mining boom but it rose more in Australia, despite a corporate tax
rate that's four percentage points higher than Canada's.
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22%
20%
18%
16%
14%
12%
10%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Chart: ABC • Source: OECD, ABS, Statistics Canada • Get the data •Embed
"It can be argued that the mining investment boom was bigger in Australia than Canada but now that it's over in
both countries, it's worth noting that business investment as a share of GDP was 2.4 per cent higher in Australia in
2016 than in 2000, as against only 1.5 per cent higher in Canada, despite Canada's massive cut in company tax."
It is also worth noting that wages have risen by about 20 per cent more (in nominal terms) in Australia than in Canada
since 2000, despite Canadian companies having had a much bigger corporate tax cut.
In fact, the opposite has been true in practice when you compare business activity in Britain and America. Between 2006
and 2013, while British businesses were paying increasingly less in tax (from 30 per cent to 19 per cent), wages went
down not up. UK wages have started to grow over the past four years but at a much slower rate than in the United States
where corporate tax rates had remained high.
INFOGRAPHIC: Comparing corporate tax rates and median wage growth for workers in the US and UK.
(Supplied: OECD, UK Office of National Statistics, Annual Survey of Hours and Earnings, US Federal Reserve )
Some commentators have seized on a study from Germany to support their theories about corporate tax cuts trickling
down to workers. Saul Eslake makes the point that the German economy is not all that similar to Australia's:
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"Among other things, workers' representatives sit on the 'supervisory boards' of large German companies so there
is probably a different debate within German boardrooms as to how the benefits of any cut in the corporate tax rate
in Germany might be shared among employees and other stakeholders."
In his speech last week, the Reserve Bank Governor Philip Lowe reiterated the need for Australia to pursue an
internationally competitive tax system but he did not specify which, if any parts of the Tax Act, might need amendment. He
kept his comments on the topic vague:
"The issue of how the tax system affects the competitiveness of Australia as a destination
for investment is one of ongoing political debate."
According to a report published last year by the US Congressional Budget Office, Australia's effective tax rate, at 10.4 per
cent, is among the lowest in the world.
INFOGRAPHIC: How Australia's corporate tax rate compares to others around the world. (Supplied: US Congressional Budget Office)
The average rate paid by American companies in Australia is just 17 per cent.
The Treasurer's office takes issues with these figures, claiming they are out of date because they are based on data from
2012. The Government prefers a study by Oxford University that puts Australia's effective average tax rate at 26.6per cent
and at the higher end of the scale.
Several analysts consulted by the ABC disagree. Managing director of Plato Investment Management, Don Hamson says:
"Whilst the data used in the 2017 CBO report is from 2012, it is the best analysis available and I don't believe the
Australian company tax landscape has changed significantly since 2012."
Dr Hamson has worked in banking and finance in Australia, as a university professor in Australia and the United States
and has served on the ASX Corporate Governance Council.
Regardless of which effective tax rate you prefer, both the Oxford and the CBO data demonstrate the folly of focusing
exclusively on the headline corporate tax rate of 30 per cent.
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He said the cut represented $20 billion a year in growth for the Australian economy with two out of every three dollars
showing up as higher wages. Those figures (and experts) came from Treasury who provided modelling on behalf of the
Government.
The numbers are based on the widely, but not universally, accepted theory
that cutting the company tax rate will raise investment, which should in turn
Fact Check: Australia's company
boost productivity and lift wages.
tax rate
Apart from the obvious point that all else is not equal in practice, not all
investment boosts labour productivity.
theories, so the Government might be wise to heed the words of Plato: "A
good decision is based on knowledge and not on numbers."
In most countries, companies pay tax and then shareholders pay tax on their dividends. Australia taxes just once. Cutting
the company tax rate therefore doesn't result in a higher after-tax return on investment to Australian shareholders in
Australian businesses so Treasury's theoretical model doesn't hold.
Experts including economist Saul Eslake estimate that Australia's 30 per cent corporate rate with dividend imputation
raises about as much tax for the government as a 20 per cent rate without dividend imputation.
The principal beneficiaries of a cut in Australia's corporate tax rate are overwhelmingly foreign companies and foreign
shareholders in Australian companies. There is no guarantee at all that cutting the tax they pay in Australia will lead them
to increase the level of business investment in Australia.
PHOTO: The last time tax cuts were on the table was when treasurer Peter Costello was in the chair. (Alan Porritt: AAP)
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In 2018's Australia, it's hard to imagine how a government could ever again manage to give away the equivalent of Mr
Costello's $170 billion worth of tax cuts while still protecting the surplus.
It's been 10 years since the Australian budget was last in surplus. With a debt of more than $600 billion, many are
questioning the merits of prioritising a $65 billion giveaway to big business in the form of a tax cut.
Back in November 2016, the president of the Business Council of Australia, Grant King was warning the Government not
to put the country's AAA credit rating at risk by ignoring budget repair. He told ABC's AM program:
"We are seeing indications that the deficit is deteriorating so it is going to be a challenge."
Yet today the BCA and its high-profile members like Mr Joyce are insisting on a company tax cut that would blow a
massive hole in the Government's revenues and push the budget and national debt further into the red.
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