The Turnbull government wants Australians to believe simultaneously that the economy 1) urgently needs corporate tax cuts so it can generate jobs, and 2) has generated an all-time record number of jobs over the last 17 months with the corporate tax rate at 30%.
Turnbull and his ministers claim handing $64 billion to $80 billion back to shareholders of the largest corporations — mostly foreign-owned — will encourage them to invest and generate more jobs. Is there any evidence this works?
For Turnbull to show how these tax cuts will serve the people, all he has to do is point to comparable countries where this has been achieved during the current global boom in trade and corporate profits. He can’t. Because there are none.
Let’s look at the 35 countries that comprise the Organisation for Economic Cooperation and Development (OECD); the club of rich, developed, capitalist economies. Of these, nine governments made significant cuts to the corporate tax rates between 2013 and 2017*.
How have those nine economies fared? Badly.
Finland during the same period cut the corporate impost by 5%. Its jobless rate also rose — from 7.9% to 8.4%. Annual GDP growth rose to 2.7%, but stayed below the OECD average of 3.12%.
Japan cut the company rate by 6.8% and experienced a minor improvement in the jobless rate but slower GDP growth — down from 2.7% to 2.0%.
The United Kingdom cut the rate by 4% and saw the jobs improve, but also copped much slower GDP growth — down from 2.6% to 1.4%.
Italy slashed company tax from 31.4% to 24% for little discernible gain. The jobless rate fell marginally, but remained high at 10.9%. GDP growth improved to 1.6%, still close to the tail of the OECD table.
Denmark cut the company tax rate from 25% to 22% for a decline in the jobless rate — down from 5.6% to 4.1% — but also copped slower GDP growth, down from 1.5% to 1.2%. That’s right at the bottom of the growth table.
That leaves Spain, Portugal and Hungary, which reduced corporate imposts and saw both healthier employment and improved growth. These economies are nowhere near comparable to Australia, however. All three remain extremely high-tax regimes with total corporate rates at 54.9%, 44.8% and 32.5% respectively. Their top personal rates, including social security levies, are 51.4%, 59% and 33.5%. Sales taxes are at 21%, 23% and 27%.
So if there is no economic benefit in jobs or growth by cutting corporate taxes during the current global boom, why is the Turnbull government so determined to proceed?
As Crikey has argued consistently, this is purely an exercise in shifting economic power from workers and consumers to corporations and investors.
A shift in wealth to the top end is precisely what happened in most countries which cut corporate taxes. Credit Suisse’s annual wealth reports show what happened to the wealth of the top 1% between 2013 and 2017. In Denmark, the richest percentile increased its share of total wealth from 29.6% to 33.2%. In the UK, it went from 22.5% to 24.3%. The richest Finns increased their slice of the pie from a miserly 13.5% up to 31.3%. In Italy, this rose from 19.9% to 21.5%. The richest Norwegians went from 28.1% to 30.6%. In Spain, this stayed the same at 25.1%, while in Japan, the share slipped from 18.2% to 14.6%. (No data for Portugal or Hungary.)
The corporate tax cut, if it proceeds, will, to quote colleague Bernard Keane, “be regarded by future historians as not merely the biggest and most brazen robbery in Australian history … but the textbook example of how policymaking in Australia has been corrupted by neoliberalism”.
*Notes: (i) 2013 was the year the last developed countries emerged from the global recession. (ii) Tax rates include direct corporate tax and social security levies. (iii) Significant means greater than 2.5%.