Inequality as a social problem, and as a political problem, are one thing, as far as corporations and their media outlets are concerned. Something to be explained away, quite literally — politicians and (they’ll reluctantly admit) business leaders have to do a better job of explaining the benefits of market economics to the restive voters. Explaining how wealth really does trickle down (except, don’t use the T-word — say something like “a rising tide will lift all boats”), how ridiculously excessive corporate remuneration is OK as long as there is “transparency” and “incentives”, how what’s good for business is good for everyone else.
But as long as it’s only seen as a social problem, inequality can safely be packed away in the box marked “social issue — not our concern”.
Trouble is, Labor has now cottoned on to something that people who have studied inequality worked out a couple of years ago: inequality is bad for economic growth. At least, that’s the view of an institution that, more than any other, is seen as the primary global advocate of neoliberalism, the International Monetary Fund, which has outlined the harm to growth caused by inequality in two papers and seminars.
And that has prompted a panic within the ranks of corporate lobbyists and neoliberalism advocates. Shit, as they say in the classics, just got real. Out came the Business Council yesterday to attack Bill Shorten for saying yesterday that company tax cuts would “impede growth”, with Australia’s least effective lobbyist, Jennifer Westacott, frothing at the mouth about such heresy. “There is a straight line from increased business investment to higher productivity, to higher incomes for workers,” Westacott said. “When politicians trash the independent evidence, it’s our community that suffers. Voters deserve better.” And the Financial Review editorial page weighed in, taking a break from urging GST rises and cuts to wages as the cure for inequality to attack Shorten for daring to question the Gospel According to Business.
Problem is for Westacott, as The Australia Institute showed back in 2012, there’s no such direct line of any kind. The fall in the company tax rate in Australia to 30% coincided with a significant fall in the wages share of income in Australia, not the increase that the “company taxes are really taxes on wages” crowd asserts. And as Crikey has noted, the experience in the UK and Canada shows that there’s no link between lower company taxes and higher growth or wages — if anything, there’s appears to be a correlation with lower growth and lower wages.
Not to mention that Westacott’s members only pay, on average, just over 24% in company tax at the moment, not 30% — and the average is only that high because the big banks all cough up around 30% on their billions in profits.
But is Shorten right that company tax cuts would impede growth? We say no — but not for the reason you might think. What Shorten was actually saying in the relevant interview, with Fran Kelly on the ABC, was that company tax cuts would increase government debt, which would impede growth:
“This corporate tax cut will impede growth, it will accelerate national debt on every Australian and the reason why we say that is because there’s no compensating revenue. This is a government who thinks you can have your cake and eat it too. Poor old Mr Turnbull and everyone else, they’re saying well we’re going to hand away a lot of money in corporate tax relief, tax giveaways, but they don’t explain where the replacement revenue is coming from which means that a greater proportion of the smaller amount of revenue will have to go to service the national debt that’s gone up by this government.”
It’s true that the government hasn’t explained where additional revenue will come from to make up for the $60-plus billion that will be lost from implementing its full company tax cut. But would the resulting higher debt (or lower repayments of existing debt, once the budget deficit ends) reduce growth? Groups like the Business Council say it does. Prominent economists say it does. The International Monetary Fund, however, says there’s no evidence that it does. So the IMF casts doubt on Shorten’s argument about debt.
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What about company tax cuts themselves? We know there’s no evidence of any link between lower company tax rates and higher growth or higher wages. Even Treasury was forced to admit that its own modelling, which relied on generous assumptions, showed the growth benefits from a company tax cuts were just 0.05% extra growth a year. But would company tax cuts actually impede growth? Nobel Prize winner Joseph Stiglitz says the US experience from the 1980s is yes.
“When President Ronald Reagan tried it in the 1980s, he claimed that tax revenues would rise. Instead, growth slowed, tax revenues fell, and workers suffered. The big winners in relative terms were corporations and the rich, who benefited from dramatically reduced tax rates.”
The other problem is that, to the extent company tax cuts increase inequality by delivering any gains to high-income earners using company structures to minimise tax (although dividend imputation would appear to reduce the benefits of that), that will have implications for growth as well.
What’s more revealing about this whole debate, however, is the sharp contrast between the reactions of the corporate rent-seekers and their cheerleaders in the framing of inequality as a social problem versus seeing it as an economic problem. And now that Labor has switched to the tack, watch the panic set in.