Most of the debate about the benefit of company tax cuts has focused on how big business would spend their $64 billion windfall from taxpayers, with Australian business and the government insisting they would spend it all on new investment and trickling it down to workers’ wages. This is despite US CEOs, who have just been gifted a massive tax cut by Donald Trump, showering it on shareholders and their own executives via share buybacks (buybacks have more than doubled compared to 2016 in the US since the start of the year, with companies announcing nearly $100 billion in buybacks).
Yesterday, Malcolm Turnbull lashed out at the ABC’s Emma Alberici for an article in which she traversed much the same turf as a number of other commentators, such as Michael West, or ourselves here at Crikey, have covered over the last year. As incoming Labor senator Kristina Keneally noted, it’s a bad look that Turnbull never said boo when male commentators demolished his tax cut claims, but jacked up when a female journalist did it.
But let’s accept the claims of the government and the big business lobby for a moment, that the benefits of company tax cuts will flow as they claim. After all, the government routinely points to Treasury modelling to show that, a few decades hence, the tax cuts will increase GDP by “up to” (how many sins are covered by that phrase!) 1.2%, and that for every $1 of money lost to big companies, there’ll be a $4.30 increase increase in GDP.
That modelling is based on a number of silly assumptions, including full employment and no government debt or deficit. The Grattan Institute conducted a forensic, independent assessment of Treasury’s modelling (accepting their assumptions) and concluded that it was more accurate to conclude that Gross National Income (that is, excluding benefits to foreigners) will be 0.6% greater than what it otherwise would have been after 25 years due to the tax cuts. That’s almost negligible given long-term economic growth.
The Grattan Institute also concluded it was more accurate to conclude that for every $1 spent on the tax cuts, national income would increase by $1.20. A benefit:cost ratio of 1.2 is solid — it’s certainly higher than a number of infrastructure projects this and other governments fund. But it’s hardly spectacular even in infrastructure terms.
The broader point is, even if you accept the government’s numbers, the economic benefits of its handout to corporations a re limited, or even trivial. For the expenditure of, say, $6.4 million dollars, you might not lament such a low return. For $64 billion, however, you need to be absolutely certain that you couldn’t earn more by using the money differently — spending it differently, or using it as a tax break differently.
Earlier this week, I found myself in the unusual position of agreeing, at least partly, with Robert Gottliebsen, who argued that boosting investment allowances was a higher priority than handing out money to companies via tax cuts. In doing so, he endorsed the views of Orica CEO Alberto Calderon. In a funny sort of way, and probably unintentionally, Gottliebsen and Calderon are doing the same thing others have suggested, from a different angle — finding a way to guarantee the purported benefits to the community (in this case, more investment) of the tax windfall for corporations. Others have sought to do this on the proposed benefits to wages of corporate tax cuts. The government and business insists wages rises will be showered all over workers if companies get tax cuts; some economists have suggested that, in which case, it shouldn’t be a problem to explicitly link the two via legislation or some Accord-style compact — increase wages, get the tax cut.
For some reason, neither Treasurer Scott Morrison nor businesses are eager to try that. Trust us, they say, it’ll all go into new investment and higher wages.
Alternatively, $64 billion over a decade could be invested elsewhere. In infrastructure projects with a higher benefit:cost ratio than 1.2 (or let’s say, 2, just to be conservative). The NBN could be restored to the kind of nation-building project it always should have been, rather than the national embarrassment it became under current management and Malcolm Turnbull. It could be targeted at restoring our higher education system to something better than, and with greater international credibility than, a degree factory for fee-paying foreign students.
Or it could be used to fund real tax reform. In a study quoted by the Productivity Commission, the Grattan Institute estimated that reforms to abolish stamp duty in favour of land tax could generate $9 billion per annum in extra economic growth (it would also help with housing affordability). That was based on a revenue-neutral assessment of the impacts of what everyone accepts is a worthwhile but politically difficult reform. Even a portion of that $64 billion, paid to the states as incentive payments to make the shift over, say, a decade, would be a far better investment. Alternatively, it could be used as an incentive payment for the Queensland, NSW and Victorian governments to establish proper road user pricing, including congestion levies, in Brisbane, Sydney and Melbourne, significantly curbing the estimated $20-odd billion a year cost congestion inflicts on motorists.
You don’t have to look hard for better things to spend $64 billion on. Which prompts the question of why the government is so eager to hand so much money to business, without any guarantee it will be spent on what they claim?