This joint opinion article by James Pearson, CEO of the Australian Chamber of Commerce and Industry, Jennifer Westacott, Chief Executive of the Business Council of Australia, and Innes Willox, CEO of the Australian Industry Group, was published in the Herald Sun, and the Daily Telegraph on 30 June 2016.
What does a company tax cut mean for me? Don’t company tax cuts all just go to the top end of town?
Those key questions have attracted the attention of many voters this election campaign. While many people understand how cutting the company tax rate will help to make Australia more competitive, the connection to their own lives might not be obvious.
The truth is that in a global environment, a more competitive company tax rate encourages existing businesses to invest more and new businesses to start investing here.
All of that extra investment creates benefits across the economy, driving innovation, creating new jobs, boosting wages and improving our living standards.
That is the view not just of the business community but also of many experts, including Treasury, the OECD,KPMG and Independent Economics. It’s also what other countries, including the United Kingdom and Canada, have found when they cut their company tax rates.
It’s worth considering how the benefits work across the economy. Eight in every 10 jobs in Australia are with private businesses, from the smallest shops to the biggest companies employing hundreds of thousands of people. Each of those jobs exists because someone decided to put a dollar at risk and created a business that succeeded and grew, enabling the business owner to create more jobs.
Nobody risks a dollar unless they believe they can make a profit after they have paid the expenses of running that business. If we have more competitive company tax arrangements, it means the business owners will have more confidence that they can make a profit down the track than they would have under today’s higher tax rate.
More confidence in being able to put a dollar at risk means more businesses will want to invest in Australia to create jobs and generate more revenue for services. It also means more businesses in Australia will choose to expand their existing operations by adding another site or investing in better equipment.
That will lift productivity and wages, resulting in better jobs. It is not foreign investors and multinationals that will lose out if Australia’s corporate tax rate remains uncompetitive; it is the local businesses and workers who will miss out.
Take the example of entrepreneur Patrick Grove, from Malaysia-based technology investor Catcha Group. Recently he considered a proposal to relocate some of his company’s activities to Sydney but decided not to because the Australian company tax rate is too high.
“The tax rate has been a deal breaker,” he was reported as saying. Research from Treasury found that two-thirds of the benefit of a company tax cut would flow to households, primarily through rises in real wages. It found that reducing the company tax rate to 25 per cent would boost real wages by 1.2 per cent, putting hundreds of dollars in the pockets of workers every year.
Some of Australia’s biggest company tax rate cuts occurred during the Hawke-Keating years and it was acknowledged that business competitiveness was fundamental to improving domestic living standards.
THE proposal to gradually reduce the rate of company tax is estimated to cost about $50 billion over 10 years, prompting some people to argue that the money would better be spent elsewhere.
But the costs of the lower company tax cut will be dwarfed by the ongoing benefits of a bigger economy, which are permanent and substantial: higher wages and more jobs each and every year. Treasury modelling indicates this net benefit will be 1 per cent of gross domestic product, or $16 billion in today’s terms, every year into the future.
Some critics have argued that Australia’s company tax cut will just pass tax revenue back to the United States because of that country’s rules on tax for US companies operating abroad. But the reality is that this claim is widely overblown and its effect is very small and fully accounted for in the Treasury modelling that backs the case for a cut.
Some commentators have argued that foreign investors gain up front, while the benefits to Australia take time. But that ignores the fact that companies will begin to invest more as soon as the more competitive arrangements are legislated, even though the lower rates will be phased in over years.
A company tax cut will offer a great boost to Australia’s economy and build resilience against the volatile forces of change happening around the world. To make vital investments in education and health, we need a strong economy.
Strong business means a strong Australia.
We must grasp the opportunity that is before us.