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Mar 30, 2015

Treasury’s panacea: surrender to tax dodgers

On multinational tax avoidance, the government white paper is a white flag, proposing a surrender to large corporations.

At the core of the government’s tax white paper is a new push for a lower company tax rate, one wholeheartedly backed by Treasury as a panacea for our economic woes — and, amazingly, apparently Treasury’s best idea for how to deal with multinational tax avoidance.

The push for a lower company tax is a staple of big business “reform” campaigns. But now Treasury is driving it. Twice recently, senior Treasury officials have flagged the need for lower company tax. In February, new(ish) Treasury secretary John Fraser complained “our company tax rate is high by international standards. In the context of far more mobile capital, high tax rates are dampening investment and productivity.” And last Thursday, his deputy secretary in charge of Treasury’s revenue group, Rob Heferen, went much further in arguing that lower company tax would boost investment and employment. And not just that. According to Heferen, it would help labour productivity, too.

Heferen was speaking to the Minerals Council of Australia. Whether he was oblivious to, or thought it prudent not to mention, the irony of this isn’t clear. See, it is the Minerals Council that is responsible for Australia having a company tax rate of 30%, rather than 28%, which Wayne Swan and Kevin Rudd sought to reduce it to via the initial version of the mining tax. Putting aside the woeful handling of the mining tax (reflecting Kevin Rudd’s refusal to release the Henry Tax Review until well into an election year), the logic of that shift was impeccable — it was designed to provide a permanent benefit from the mining boom by encouraging investment by the non-mining sector through a lower company tax rate.

The lie-filled Minerals Council campaign against the tax prevented it from happening. But even after the council begrudgingly backed a modified mining tax that paid for a 1%, rather than 2%, cut in the company tax rate, Labor couldn’t get the cut through the Senate. In one of the weirder combination in Australian political history, the Coalition and the Greens combined to block a company tax cut. Why was the party of big business opposed to a company tax cut? They never really explained that, especially given they themselves were notionally committed to a 1.5% company tax cut for Tony Abbott’s paid parental leave plan. Presumably Labor’s company tax cut wasn’t as good as the Coalition’s company tax cut, in some ultra-sublime way that mere mortals couldn’t detect.

Heferen declined to note his host’s role in derailing a 28% company tax rate. Nor did he mention the drivel the Council had produced that very day — yet another report purporting to analyse the tax paid by the mining sector. The estimable Michael West immediately shredded this garbage, and particularly the mining lobby’s go-to lie, that royalties are taxes (and thus, to be used to inflate the sector’s underwhelming tax contribution).

Heferen also mentioned base erosion and profit-shifting (BEPS, better known as tax dodging) by multinational companies, but didn’t go as far as the White Paper itself, which suggests cutting the company tax rate is a fix for that, too. “Lowering our corporate tax rate would also reduce the underlying incentive for companies to engage in profit shifting, debt loading and tax avoidance.”

Is there nothing a company tax cut can’t do? Improve productivity, drive wages growth, lift investment — and fix tax dodging, albeit by simply not bothering to tax the tax dodgers in the first place.

Well, one thing it can’t do is fix the budget, as Heferen admitted. Although, he tries some Laffer Curvonomics to magic away much of the problem, claiming that the benefits to economic growth from a company tax cut would make up “between 45% to 60% of the cost to revenue of a company tax cut”. The real answer on that, however, is found in the white paper, which makes the case for a higher GST, given our rate is low compared to other countries’ consumption tax levels.

Treasury’s Pollyannaish advocacy of a corporate tax cut as an economic panacea is, in effect, the unconditional surrender of Treasury to big companies and particularly multinational tax avoiders. It’s a white flag, rather than a white paper. That the Australian Treasury could seriously suggest that an effective means of dealing with tax dodging is simply to not bother taxing companies in the first place is a low point for a proud institution.

It also places Treasury squarely at odds with voters. Voters want higher company taxes, not lower ones. And they want multinational tax dodging addressed, not in effect formalised by a tax cut. The likes of Rob Heferen and John Fraser will have to work a damn sight harder on their lines if they want to convince voters company tax cuts are good for them. Caving in to multinational tax dodging is exactly the wrong way to go about it. Voters won’t support any company tax cut if they they think the Apples, Googles and News Corps or the world don’t pay the amount they’re supposed to in the first place.

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19 comments

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19 thoughts on “Treasury’s panacea: surrender to tax dodgers

  1. Lubo Gregor

    Voters – shmoters, once the TPP is in, the political parties will stop bothering to even pretend there are any voters between them and their corporate masters.

  2. Justin Harris

    I agree with with Lubo, the media still pretends the Government is at the helm when it never has been, but as already stated below when our quisling leaders (both sides) agree with open arms to this coming TPP (Traitorous Politicians Pact) which they will despite all the media postering, there is no further requirement for them as civil, human and any other rights we wish to mention will be decided behind closed doors anywhere in the world at any-time by our “not quite human” central bankster dictatorship.

    Suck it up people no backlash against this is a sign of your acquiescence. This is just the start and you have no idea what is coming.

  3. Salamander

    Some US Dems are objecting to these conditions. Maybe it won’t get up. In some ways even the US have more protections than we have.

  4. klewso

    Surely company tax cuts will stimulate demand too….?

  5. wellsy32

    Good one klewso. The nexus between company tax cuts and increased demand is never explained by Treasury boffins. Long live the Laffer curve.

  6. Observation

    The treasurer has said he wants a public discussion on tax reform. That’s a good thing. So how about he now takes a leading role in this. How does he expect this discussion to work if he does not? Do we gather some sort of brains trust made up of experts around the country or is his plan to have it played out in the media to give the government some direction to make small punitive changes on the popular vote?

    Yes we need tax reform, so lets get serious about it Joe. Get the unbiased intelligence resources, thrash out a worlds best tax system, explain the pro’s and cons, reasons for change and their expected impact and map out the implementation plan. No politics, just research and development.

  7. David Camfield

    I concur with Lubo and Harris – this is just a warm up to the TPP. Considering Shorten’s favourite word is ‘bipartisan’ at the moment, then what hope have we got.

  8. klewso

    …. removes warts, stimulates hair growth (on your palms), cures flat feet, flatulence and halitosis.

  9. klewso

    An IGR (genetically engineered to be limited in it’s scope) predicting what will happen in 50 years – and their predictions (“commodity prices”/revenue?) last year for this were wrong?
    [Heferen, presumably an economist? Where was the GFC when he noticed it?]
    And we’re supposed to “listen to economists and politicians” (Chris Richardson) – they know what they’re talking gibberish about?

  10. Justin Harris

    Why do we always have these little gnomes like (the chamber of commerce and industry), (minister for resources -ferguson) jumping up and down in the the media about more for the rich and less for the poor. It’s the same ole same ole big business are just not getting a fair cut apparently?

    Ferguson should be shot as a supposed Labor advocate of the people. So this gives you an indication of what doesn’t represent us. Year after year since the 1980’s living conditions have been on the descent where will this end, the answer to this lies with us and how far we let it slide. It’s quite clear voting isn’t going to change anything most of the public remain blissfully ignorant about the day to day legislation that is getting rammed through by both parties on behalf of the “shadow men” well this explains it better:-

    http://www.youtube.com/watch?v=7-4Hhdssduc

    Consider some other alternatives like why the US wanted to extradite Garry Mckinnon from the UK. If you consider that there has been a deep space programme going on since the 1950’s who funds it??
    In hospital we are swabbed with a small alcohol patch which is billed at $7.00 when a box of 100 of these swabs cost about a $1.90 any clues yet. This programme included the cold war which was supposedly a massive build up of arms between the US and the then USSR when in actual fact this was just a budget black hole for this programme. The cold war is over and now a new regime is needed to continue this rape from the public purse. War on terror perhaps? Of course this also goes back to when the “shadow men” took control of the Fed.
    The point here it’s 2015 and we are still driving around in cars with internal combustion engines when about a 100,000 electric cars were taken out of circulation in the 90’s and crushed “who killed the electric car” We are sustaining industries that are obsolete but they are industries of profit non the less.
    Just like 90% of the pharmaceutical industry the drugs are useless or dangerous but it remains an insanely profitable industry. Who do all these industries service???
    If you think my tin foil hat has holes I will gladly make another because they wouldn’t do that would they???