Advocates of a company tax cut appear to have a genuine inability to grasp an epistemological basic: actual real-world evidence differs from speculation, however expert. Today’s Australian — which editorialised in favour of company tax cuts (bearing in mind the company that owns the paper, News Corp, has structured its affairs in order to pay no tax in Australia) — has persisted with the bizarre idea that modelling of the benefits of a corporate tax cut proves that such benefits are real.

To back up its argument, it ran a piece by Canberra economist Chris Murphy in which he argued that modelling undertaken by his company, Independent Economics, proved there was “a consumer benefit to budget cost ratio of 2.39 from the proposed company tax cut”.

There are a couple of things that are problematic about this. While described as “independent” in The Australian, in fact Murphy worked with Treasury on its tax modelling early this year. Murphy is a respected economist, of course, but “independent” he is not, in this context, as in effect he is defending work to which he contributed — something that neither The Australian nor the government, which is “seizing on” his work, is acknowledging.

The other is that, even taken at face value, his modelling still suggests a negligible overall benefit. Murphy doesn’t spell out the time period in which the consumer benefit of 2.39 would accrue, but if we assume ten years for this benefit of around $117 billion to accrue, that’s around half of one percent of GDP across that period.

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But the broader point is — so what? The Australia Institute has produced modelling that disputes both Treasury’s modelling and company tax cut modelling Murphy did for Treasury. The Grattan Institute has taken Treasury’s modelling apart as well. Everyone now has modelling that can say what they want it to say. The only way to cut through such debates is to examine the real world evidence. And what is the evidence for widespread economic benefits claimed for company tax cuts? Remember, advocates say that they produce not merely higher economic growth but higher wages, higher employment, higher productivity and higher investment. The corporate-funded think tank Centre for Independent Studies took issue with our complaint that company tax cut advocates hadn’t produced any real-world evidence, but the “evidence” cited in response is all modelling or appeals to authority — with the sole exception of a German study that found a link between corporate tax increases and lower wages. The evidence for higher productivity, higher growth, higher investment, higher employment from countries that have cut company taxes… well, that’s still missing.

The other, inconvenient real-world point is this: the Australian economy is performing well despite a difficult global economic environment. Indeed, our growth in the March quarter was around the same as the global growth rate, highly unusual for a developed economy, led by our commodities exports. Many of those exports flow from mining projects undertaken in recent years despite what we are constantly told is Australia’s uncompetitive company tax rate and uncompetitive wage costs. Indeed, while Labor was in office, Australia was regularly rated by US analysts as the world’s best place for mining investment, despite our 30% tax rate, despite the mining tax, despite the reluctance of our workers to accept $2 a day from Gina Rinehart.

In fact with growth at a four year high, interest rates low, retail sales solid, business investment weak but signs of a rebound in non-mining, wages growth slow (which is good for corporate costs and more important than a tax cut), building approvals positive and business conditions at the best for several years, employment growth continuing, inflation low and staying low for “some time” according to the Reserve Bank and consumer confidence at two year highs, you’d be entitled to ask why the government is running a campaign in effect damning the economic settings it is responsible for. Instead of selling the Coalition’s own economic record — one that has achieved “jobs and growth” — in a positive fashion, Malcolm Turnbull and Scott Morrison are trying to argue that a corporate tax cut will perform miracles in 10 or 20 years’s time, and invoking whatever modelling suits their purposes to do so, regardless of evidence from around the world.

Voters, plainly, aren’t buying it — even nearly a quarter of Liberal voters oppose the company tax cut. Or perhaps they’re just confused by Turnbull’s “jobs and growth” economic plan that consists primarily of a big handout to companies already doing very well in Australia, thank you.

I subscribe to Crikey because I believe in a free, open and independent media where news and opinions can be published that I can both agree with and be challenged by.

As a Crikey subscriber I always feel more informed and able to think more critically about issues and current affairs – even when they don’t always reflect my own political viewpoint or lived experience.

Jess
Singapore

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