Remember how company tax cuts, according to their proponents, lead to greater investment, more jobs, higher productivity, higher wages growth and higher economic growth? They’re a veritable economic panacea.

Courtesy of the first stage of the government’s tax cut — which trimmed the rate from 30% to 27.5% for companies up to $10 million a year in turnover for the 2016-17 financial year — we’ll soon be able to see all the new jobs and higher investment flowing from smaller firms, right?

Firms like small Melbourne-based licensed investment company (LIC) Mirrabooka Investments. Mirrabooka is a listed company that manages around $172 million in investments in small to medium Australian companies. It is part of the Australian Foundation Investment Company group of investment companies that were associated with the old JB Were broking house in Melbourne (and the old heart of the Victorian branch of the Liberal Party). AFIC manages Mirrabooka and the the companies such as Djerriwarrh Investments and Amcil. 

[All hail the economic panacea of company tax cuts]

Mirrabooka yesterday became one of the first listed Australian companies to frank its shareholder payouts at the government’s new lower corporate tax rate of 27.5%. Mirrabooka got the tax cut because it had turnover of around $9.4 million in 2016-17 — down from $10.3 million in 2015-16, which would have disqualified the company. 

What’s it doing with that extra cash? It will pay a special 4 cents a share dividend to shareholders, along with holding its final payout steady at 6.5 cents. That brings the full-year payout to 14 cents a share, up from 10 cents a share in 2015-16. “The special dividend was set taking into account the lower rate of franking credit at 27.5 per cent because of the recent changes to corporate tax legislation,” the company said yesterday. 

“The directors have taken this new rate into consideration when setting the dividend,” according to comments from Mirrabooka managing director Ross Barker in the company’s 2016-17 annual results.  

[The surprising relationship between company tax and executive pay]

But … but … what about extra employment? Mirrabooka has few staff and shares its executive and management team with AFIC, Djerriwarrh and Amcil. Terry Campbell chairs AFIC and Mirrabooka. Ross Barker is CEO of Mirrabooka, Djerriwarrh and Amcil. The companies pride themselves on their very low-cost approach to funds management.They are very wealthy individuals, and the government’s tax cuts will make them wealthier, without any benefit to the wider Australian economy.

The company’s top 20 share holders at the end of 2015-16 (we have to wait a few more weeks to get an updated list) shows that AFIC was the largest shareholder with 5.63% (or 8.727 million shares), Djerriwarrh Investments, another LIC in the AFIC stable, was the second largest with 2.86% (4.437 million). Other identified related partners included Campbell and Barker, the current CEO, with 0.31% (481,483 shares). Their tax credits under dividend imputation will fall of course, but these and other shareholders will be rewarded with more money from Mirrabooka. 

Wonder how many more small listed companies in coming weeks will reveal that the tax cut is flowing into shareholder bank accounts rather than into new jobs?

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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