It could be the greatest tax avoidance scam ever perpetrated: $50 billion in tax cuts to be handed a corporate-funded political party to some of the world’s biggest corporations, all on the pretext that it will drive economic growth, business investment, employment, wage increases, higher productivity … in fact pretty much any economic benefit ever identified in an economics textbook will be achieved by cutting the company tax rate for large corporations to 25%.

Except no one can produce actual evidence that it will do anything of the sort — despite countries like the UK and Canada having cut corporate taxes in recent years, enabling a comparison of their performance with Australia; despite the United States having the highest company tax rate in the developed world.

What’s being proposed is a $50 billion handout to big business that won’t, based on any empirical evidence, produce any benefits.

Last week Crikey asked James Pearson of the Australian Chamber of Commerce and Industry — one of many employer lobby groups demanding a tax cut for big companies — what specific evidence ACCI could point to that any benefits would flow from a company tax cut, given the UK and Canadian experience appears to suggest poorer economic outcomes result from it. Pearson dodged the question and replied with a classic “appeal to authority” argument — my question was better directed at Treasury, he said, because they had argued the case for it.

You’ll be astonished by this, but when Treasury backed a mining superprofits tax in 2010 in the wake of the Henry Tax Review, do you think ACCI was content merely to take Treasury’s word for it? No fear.

That’s just the usual hypocrisy of public debate, of course — although the company tax debate comes with an unusually large dollop of hypocrisy from all sides. As Pearson noted, Labor had also backed a company tax cut — originally 2%, then 1% — in 2010 along with the mining tax. Now Labor only backs further company tax cuts for businesses up to $2 million in turnover.

The charge of inconsistency against Labor is certainly fair, although it falls a little flat given even Labor’s original proposal of a 2% company tax cut would only have reduced the rate to 28%, not 25%. Labor’s proposed cut was also made in the context of an economy struggling with a mining investment boom and a strong dollar (that in the following two years became much stronger still). More to the point, Labor’s hypocrisy and inconsistency exists in perfect symmetry for the Coalition, given it opposed Labor’s company tax cut, but now believes in going much further.

The fact that last week Malcolm Turnbull and Scott Morrison in effect distanced themselves from their own tax cuts by emphasising how small and medium businesses would be the beneficiaries while multinationals would have to wait three elections was evidence that Labor’s campaign against the cuts has been biting — much as Labor’s campaign on increasing the GST forced Turnbull to back away from that over summer.

But along the way, Treasury’s credibility has also been dealt a blow. Its own modelling admits to modest economic benefits from the proposed tax cut (1.2% of additional GDP over decades), but Australia’s best economic commentators have taken aim at both the modelling and the government’s policy — Peter Martin, Ross Gittins, John Daley and, on Friday, a forensic savaging of Treasury’s assumptions by the ABC’s Stephen Long.

That Treasury only offers modelling as evidence of the benefits of corporate tax cuts, when real-world evidence is potentially available from other countries, reflects an important characteristic of Treasury’s position: it is an ideological one, not one based on empirical experience. Treasury, after all, has seriously put forward corporate tax cuts as a solution to the problem of corporate tax evasion — requiring companies pay less is their idea of reducing the amount of tax lost to companies avoiding tax.

The mainstream media (well, outside News Corp) is becoming increasingly sceptical of private economic modelling, and increasingly willing to challenge the claims of vested interests pushing bespoke modelling. Treasury was always supposed to have greater credibility and authority. But its rigid ideological support, in the face of real-world evidence, for company tax cuts is undermining that authority. Treasury might discover that, in the course of one of Australia’s greatest tax scams, its own credibility has been stolen as well.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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