Dr Jack Mintz
Readers who trouble themselves to buy The Australian or The Financial Review yesterday would not have been surprised to see the Minerals Council of Australia supporting a reduction in company tax rates. Its urgings were accompanied by a report “showing workers stand to benefit the most, and that Australia’s corporate tax burden is now among the highest in the developed world”. The report found that a cut in Australia’s “uncompetitive company tax rate” “would primarily benefit wage-earners” and “stimulate new foreign investment and economic growth”, the Minerals Council’s Brendan Pearson claimed.
The author of the report is a Canadian, Dr Jack Mintz, “President’s Fellow at the School of Public Policy at the University of Calgary in Canada”, better known as a conservative economist who features heavily in the Canadian tax debate, especially in his home province of Alberta. He was an adviser to the right-wing oxymoronic Progressive Conservative party in Alberta that governed that province for decades until it was tossed out last year favour of actual progressive parties, following the oil price crash and a surge in unemployment. For over a decade Mintz has also been a director of Imperial Oil and holds nearly CAD$1.4 million in shares. So, at least, Mintz has some skin in the game when it comes to company tax, but curiously, this isn’t disclosed by the Minerals Council, which at least might have taken the trouble to inform Adam Creighton and Phil Coorey when the MCA dropped the report to them.
The Canadian angle is interesting, however, because as Mintz explains, Canada has significantly cut company tax both at the federal and provincial level (the provinces in Canada levy company taxes as well as Ottawa). Mintz’s report shows that Canada has “reduced its company income tax rate from 34.2 per cent in 2005 to 26.6 per cent in 2015”. Mintz also notes that “average company income tax rate across the 45 countries included in this study has declined 2.4 percentage points”.
Mintz also says that “company tax hurts growth by deterring investment decisions and the adoption of new technologies”. And Mintz compares the investment performance of Australia, which “is now the 6th highest among OECD countries and 11th highest of the 45 countries in this study” with other countries — except, curiously, the graph he provides accurately shows Australia’s private investment levels surging since 2000 (obviously with a break for the financial crisis), fueled by the resources boom. In 2012, Australia had a higher level of investment:GDP than any other country in Mintz’s graph — despite not having lowered its company tax rate. And while the end of the resources boom has curtailed investment, currently — according to Mintz — we trail only Estonia and the Czech Republic in private investment to GDP. Still, we did benefit from a historic resources boom, so wouldn’t it be great to compare Australia to another resources-based economy that had cut its company tax rates, while we hadn’t?
Like, um, Canada?
And even better, the report is written by a Canadian tax expert, so we eagerly scrolled through the report looking for the Canadian comparison … and scrolled, and scrolled. No Canadian comparison, until the very end, where there’s a footnote about academic studies on investment. Canada’s not even on Mintz’s chart of investment-to-GDP ratios, curiously.
That got us wondering why.
We asked another Canadian economist, Dr Jim Stanford, who is Harold Innis Industry Professor of Economics at McMaster University in Hamilton, who happens to currently be in Australia. Prof Stanford provided us with some material that might explain why Doc Mintz failed to discuss his own country. Stanford showed that, based on OECD data, real capital spending in Australia has grown at an annual average rate of 3.94% in the last 10 years, while in Canada it has only grown by an average of 1.67%.
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And International Monetary Fund figures that we dug out show that, as a proportion of GDP — exactly the figure Mintz himself uses — private investment in Canada has followed virtually the same track as Australia over the last decade (unsurprisingly given the resources boom in both economies), but at an average of 4.4 percentage points of GDP lower.
What about the claim that lower company tax rates flows through to higher wages, which we saw last week hasn’t happened in the UK? In Canada, Stanford showed us with OECD data, nominal wage growth has averaged just 2.72% compared to 3.28% in Australia. In real terms, Canadian wages grew over the last decade at just 0.98%, compared to 1.33% here. So much for “workers stand to benefit the most”. Mintz also devotes part of his report to spruiking the debunked claim that the incidence of company tax falls on workers, rather than holders of capital, which we explored last week.
As for GDP growth, Canada’s has averaged 1.7% over the last decade, compared to 2.7% here. Indeed, some economists are starting to link Canada’s company tax cuts to poorer economic performance.
In fact, as Stanford pointed out to us, in Canada “some provincial governments have now begun raising corporate taxes back up to help pay for budget deficits, disappointed with the lack of a growth dividend from earlier cuts”. Mintz subtly acknowledges this in his report where, without explanation, he notes that the overall Canadian company tax rate to has fallen to “26.6 per cent in 2015 (somewhat higher than in 2013)”.
Perhaps Mintz thinks Canada’s economic performance would have been even poorer compared to Australia than it was without company tax cuts. But how curious that, yet again, when you go looking for real-world evidence of the claims of corporate tax cut evangelists, it can’t be found.