Bang, bang, bang, bang, bang. Five reports have hit Treasurer Scott Morrison’s desk in the last few days. Each one is a three-inch nail in the coffin of his cherished theory of trickle-down economics. Australia has now given economics 101 textbook writers the definitive case study to disprove this once-popular notion. Hard to imagine a more compelling one.
The Abbott and Turnbull governments have assiduously pursued the shift of wealth and income to the big corporations and rich individuals. Their rationale is that this leads to investment in productive enterprises, greater economic activity, then more demand for jobs and, eventually, higher wages and greater shared wealth.
Abbott articulated this with “we cannot have a strong economy without profitable businesses”, Turnbull with “our economic plan is for jobs and growth”.
Corporate taxes cut
Manoeuvres to shift the tax burden included cutting tax rates, dumping the carbon and mining taxes altogether, dropping tax recovery court cases, reducing Australian Taxation Office (ATO) audit staff, permitting greater self-assessment and tacitly permitting avoidance. “Australia is open for business (nudge, nudge, wink, wink, say no more).”
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Late efforts towards compliance have been proclaimed but remain ineffective.
The scale of the shift was evident in last week’s monthly Finance Department report — the first of our five fiscal nails — which shows company tax collections this financial year at $68,700 million.
As Crikey reported last week, Wayne Swan reaped $66,608 million in 2011-12, during the global financial crisis (GFC). Peter Costello collected $61,700 million in 2007-08. Hence effective company tax rates today are well below those back then. If similar collection rates applied today, company tax revenue would be about double the current actual collections.
As a result of this, together with the global trade and commerce boom, Australia’s big corporations are now enjoying unprecedented profits. That’s according to Monday’s gross operating profit data from the Australian Bureau of Statistics (ABS) — the second nail in ScoMo’s fiscal coffin.
Manufacturing profits in the 2017 first quarter were the highest in six years. First-quarter profits in financial and insurance services were up 170% from the profits in the same period last year. Combined profits for the last two quarters were $3,200 million, the highest in eight years.
Mining profits for the last two quarters — the fourth quarter in 2016 and first in 2017 — were $56,485 million, the highest in Australia’s history. First-quarter profits in rental, hiring and real estate services and also in transport, postal and warehousing were both best ever.
Total fourth-quarter profits last year were a record $77,943 million. That was eclipsed by Monday’s data for the first quarter this year — an impressive $82,628 million. That is 39.7% higher than the equivalent quarter last year.
So with booming corporate mega profits, we should have amazing jobs and growth numbers. Correct? In fact, the opposite is the case.
From 2008 to 2013 Australia’s quarterly growth in gross domestic product (GDP) was second highest among the 35 developed countries in the Organisation for Economic Co-operation and Development. Only Australia and Poland averted a full-blown recession. Poland’s growth was slightly stronger.
Now, in contrast, Australia’s quarterly growth ranks second from the bottom. Three countries share second last place: Australia, Israel and Switzerland on 0.3%. Three countries are equal lowest on 0.2% — Chile, Norway and the UK.
That’s from Wednesday’s ABS data on the national accounts — the third nail.
The unemployed tally has been jammed well above 725,000 for six months now. Those underemployed (i.e. people who need more hours) number a record 1,114,558.
Among young people aged 15 to 19, 37.6% are looking for full-time work — higher than at any time during the Howard, Rudd or Gillard years.
Hours worked per adult per month — the best measure of real paid work — dropped in April to 83.80, the lowest since 1994.
The Office of Financial Management’s report last Friday — the fourth nail — showed total gross debt at a record $497.3 billion. That’s up $227.3 billion in just three and a half years — way more than the $212 billion Labor added in its five years and nine months — during the GFC.
Other indicators close to all-time fails include housing approvals, construction, interest rates, wages growth and national net worth.
Private capital expenditure
As Jim Chalmers wrote in Crikey last week, this is currently close to a 10-year low. Profits are not being re-invested in Australia. They are going offshore.
It is now abundantly clear that shifting profits to the big corporations does not build the local economy. Taxes uncollected are not re-invested. They are sent to, well, who really knows? Tax havens abroad are one destination, as discovered from Turnbull’s own activities. Dividends paid to foreign shareholders is another.
Tuesday’s ABS figures on capital flows — the fifth and final nail — show the capital and financial account for the March quarter was $3693 million. That’s the lowest since 2001, during the early 1990s recession. Hence net money flowing in is close to an all-time low, as expected if mega profits are being offshored at an unprecedented rate.
The developed countries that seem to be performing best on GDP growth and jobs have higher company tax collections than Australia. And higher taxation and government spending overall.
These include Germany, Iceland, New Zealand, Israel, Denmark, Hungary, Netherlands, Estonia, Czech Republic and Luxembourg.
It is not rocket surgery. Low income people spend most of their disposable income on the necessities — at shops where local people work. And occasionally cinemas and cafes. High income people buy properties, boats and shares.
The conclusion seems inescapable. Cutting taxes on the rich does not work. An optimum tax mix does. Australia’s settings before 2013 were pretty right, after all.