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Introduction

Who are the real villains when it comes to tax — short-sighted governments or greedy corporations? Will cutting company taxes increase wages, or merely line the pockets of an idle rich? Are all company bosses baby-eating imperialists, or are the vast majority honest Australians doing their best to get by? All these questions and more will be answered in the new Crikey series “Beating the bandits: who’s robbing whom in the great corporate tax heist?”

Part One

Dec 12, 2017

Swan: Australia's great corporate tax heist

Once again Labor’s 2013 tax transparency legislation has proven that sunlight is the best disinfectant. Last week the ATO revealed that one in three public corporations paid no corporate tax in the 2015-16 financial year, echoing the results from the previous year and exposing the maliciousness of companies that engage in corporate tax evasion.

While there are legitimate reasons for some companies to pay no tax – operating at a loss, for instance – when companies like Chevron, Exxonmobil and Shell record a combined $13 billion in revenue but contribute precisely $0 in tax, it is clear that the Turnbull government is not interested in walking the talk on corporate tax responsibility.

But there is a deeper question to be asked: if one in three public corporations aren’t paying corporate tax already, why is the Turnbull government willing to go to the wall to deliver corporate tax cuts?

The answer is that the political right in Australia, just as in the United States, has sought, since at least the 1970s, to wind back our progressive tax system and undermine the role of government in supporting a prosperous economy and fair society.

To understand the political right’s long game on tax cuts, we need to go back to Arthur Laffer’s 1974 meeting with key members of Republican president Gerald Ford’s administration.

During the meeting, Laffer scrawled on a napkin a simple graph to show that a cut in the tax rate could increase total revenue by encouraging the business investment that would drive economic growth. Laffer’s now-infamous napkin scribble became known as the Laffer Curve, serving as the paper-thin justification for the neoliberal economic revolution of the 1980s and 1990s, which argued that lower tax rates and less government regulation would drive economic growth and higher living standards.

We now know of course that in America, the neoliberal economic revolution didn’t deliver strong economic growth or high living standards. Instead it drove the rampant income and wealth inequality that hollowed out the US middle class and prompted the biggest economic downturn since the Great Depression.

Despite the remarkable failure of the neoliberal revolution, a small but powerful group of ideologues, led in Australia by Malcolm Turnbull and in the United States by Donald Trump, continues to preach the virtues of trickle-down economics.

The standard trickle-down argument goes that corporate tax rates, irrespective of their current level, are “too high” and must be lowered to drive investment and to ensure our economy remains competitive.

It’s a brilliantly simple and seductive argument, which has proven almost impossible to eradicate … but like so many overly simplistic arguments, it too disintegrates when brought into the light.

Between 2011 and 2016, Australia’s economy grew by 15.6%, putting us 11th among OECD nations. But not one of the 10 countries that recorded stronger economic growth over that period did so by cutting taxes. For the Turnbull government’s trickle-down myth to hold, Australian companies would have to be facing tax rates so eye-wateringly high that profitability was nearly impossible, but as the recent ABS business indicators reveal, company gross operating profits are 20% higher over the year and dividends have continued to rise.

Similarly if tax rates were the magnet for foreign capital that they’re claimed to be, then 97% of applications to the Foreign Investment Review Board wouldn’t be coming from countries with company tax rates that are lower than Australia’s.

When compared with other OECD countries, Australian companies do not face exceedingly high tax rates. A recent report from the US Congressional Budget Office calculated that a hypothetical US-owned company setting up operations in Australia would face an effective corporate tax rate of 10.4%, a rate below that of more than half of all G20 economies.

Alternative estimates from Oxford University’s Centre for Business Taxation put Australia’s effective corporate tax rate at 19.6%, but the composition of the assumed “investment” made by their hypothetical foreign-owned company looks markedly different from the average Australian company’s balance sheet, which biases their tax rate estimate upwards.

Regardless, these figures should blow out of the water the Business Council’s claim that Australia’s corporate tax rates are uncompetitively high, or unattractive to foreign investment.

The most egregious argument put forward in favour of a corporate tax cut is that the benefits will flow to workers. The Treasury’s own modelling shows the government’s proposed 5% corporate tax rate cut would only increase employment by 0.1% by 2026-27.

Even CEOs who should be in favour can see through the hubris, such as former Adobe manager David Mandels:

As a CEO and member of the Board of Directors at a public company, I can tell you that if we had an increase in profitability [as a result of a corporate tax cut], we would have been delighted, but it would not lead in and of itself to more hiring or an increase in wages. Again, we would hire more people if we saw growing demand for our products and services. We would raise salaries if that is what it took to hire and retain great people. But if we had a tax cut that led to higher profits absent those factors, we would ‘pocket it’ for our investors.

The belief that companies make their investment decisions based on corporate tax rates or that wages are determined by tax rates alone is the great tax con.

As the RBA’s Luci Ellis noted several weeks ago while admonishing the Business Council of Australia for their ideological pursuit of corporate tax cuts, businesses make investment decisions based on a range of factors including “the business environment, the institutional framework, the rule of law, the macroeconomic outlook, the educational base of the country and where the resources are”. For a multinational corporation deciding where to set up operations, the corporate tax rate does matter – but it is far from the only thing that matters.

BHP Billiton is a multinational corporation with great powers of creativity, but all the creativity in the world cannot move our substantial subterranean iron ore deposits so that they may be mined in a country with a lower corporate tax rate. If it is buried in Australia, it must be unearthed in Australia. Facing this geological reality, BHP has engaged in all manner of creative bookkeeping procedures to take advantage of tax rates as low as 5%, in Singapore, on Australia’s common wealth.

Australia could lower its corporate tax rate to 5% and enjoy a momentary economic boost, but the heart would soon be ripped out of our economic prosperity. A strong and rigorously enforced tax system is the quid pro quo for any companies that wish to operate in Australia and enjoy the public infrastructure, health and education systems that make this country an attractive place to do business.

The relentless erosion of our tax base by a few large corporate tax termites in Australia threatens the foundations of our prosperous economy and fair society. We cannot fall victim to their baseless appeals for leniency or shelter while their rampant minimisation and avoidance is in the light for all to see.

Part Two

Dec 13, 2017

Australia shouldn't follow the US on company tax cuts

The Business Council of Australia (BCA), and its proxies in parliament, currently find themselves closely aligned with US President Donald Trump in making the case for massive tax cuts: US$2.4 trillion over 10 years in the case of Trump, and over $60 billion over 10 years under the Turnbull government’s tax-cut plan. Neither are funded, although the Republicans are looking for tax breaks to close down to provide some offsetting savings.

Both Trump and the Turnbull-big business alliance here insist that the benefit of the cuts will primarily flow to workers through growing wages, stronger employment and higher economic growth. That’s despite real-world evidence that, to the contrary, corporate tax cuts mainly benefit shareholders and corporate executives. The Trump tax-cut agenda has prompted some key institutions and highest-profile economists to challenge the claims being made by Trump and the White House about the claimed benefits of massive tax cuts for the world’s biggest companies. Here’s a sample of how the US debate has proceeded in recent months.

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Part Three

and

Dec 11, 2017

Three ways to cut company tax while improving welfare

The US Congress recently passed tax bills through the House of Representatives and the Senate that cut the US headline company tax rate from 35%, the highest rate in the world, to 20%.

The US Internal Revenue Service collects very little revenue from its current company tax. The system is broken, with a high rate, narrow base, and loopholes that permit its largest multinational enterprises – Google, Apple, Amazon and big pharmaceutical companies – to keep trillions of dollars offshore, out of the tax base. Half of US domestic business investment now goes through “pass-through vehicles”, like limited partnerships, which avoid company tax.

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Part Four

Dec 15, 2017

Not every CEO is a fat cat, child-eating imperialist

Eyes seem to roll when business and business groups like the Australian Chamber of Commerce and Industry (ACCI) call for tax cuts — which is a pity. It’s not like many (or any really) of Australia’s 2 million-plus businesses are fat cat imperialists who like nothing more than to exploit workers and eat small children.

There is bad behaviour certainly. Unethical and illegal behaviour, and our society — the media and other businesses — rightly calls them out. We should continue to work together to weed out these individuals.

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Part Six

Dec 11, 2017

Company tax cuts won’t work in the US, and they won’t work here

So, the Republican majority in the US Congress have passed a massively regressive package of tax cuts, with a cut in the rate of company tax as its central feature. Unsurprisingly, this news has produced a revival of the Turnbull government’s proposal to offer similar cuts here.

The primary claim put forward in support of company tax cuts is that they will lead to an increase in investment, or at least prevent the loss of foreign investors to the lower-tax regime being proposed by Trump and the US Republicans. According to Treasurer Scott Morrison, quoting research from the Commonwealth Treasury, if we fail to follow the US lead we will be a less competitive destination for foreign investment.

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Comments

33 comments

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33 thoughts on “Beating the bandits – who’s robbing whom in the great corporate tax heist?

  1. Multinationals seem to have little regard for social license – being essentially stateless, seeking money, influence and power. So where does that scenario go if not checked?

  2. If Wayne Swan is so clever about all this, Why did he fail to take ANY action in the matter in the 6 years that he was the World’s greatest Treasurer. H eshould hang his head in shame.

    1. granorlewis, where were you in swans years, the economy was going gangbusters till this mob of economic idiots were elected and its been all downhill since, the recipe for revival is a labor government to clean up the mess of the abbott/turnbull disaster.

    2. Those of us who follow politics know that Swan was working in the Gillard government with a number of OECD economic ministers on a range of policies that would effectively stop multinational tax evasion but the whole program was slashed by smokin’ Joe as soon as he got into the Treasurers office !

      1. Thanks for that reminder that he wasn’t completely useless.
        Just mostly.

    3. If Swanny needs to hang his head in shame, what should Costello,Hockey and Morrison do to make amends…assuming necking themselves is too much to ask ?

    4. Granorlewis – Australia avoided the GFC’s massive unemployment and retraction of consumer spending, “the heartbeat of the economy”- Gittins, due to Swan and Rudd’s massive and timely injection of govt funds in to our economy. The rest of the world’s economies tumbled in to recession for years.

      Treasury head at the time, Ken Henry, is on the record as saying that hunded’s of thousands of jobs would otherwise have been lost – forever.

      If you want a Treasurer to hang his head in shame, look at Costello, who allowed our historic, largest mining boom revenue to be structurally entrenched with tax cuts, largely for the top end of town and business. What do we have to show for it now? Perhaps wistful glances at Norway, who knew how to manage their oil resource corporate taxation for future taxpayers.

  3. The GST Theft Tax should go. It was introduced by Howard, and passed through the Senate with the help of personally ambitious Australian Democrat senators selling out their own party, to pay for a 17% cut in the company tax rate. In a statement which he later repudiated, the venal but eloquent Paul Keating described indirect taxation as “the many pay more so the few can pay less”.

    1. NOT SO Dion Giles. The Democrats went to the 1998 election with a policy so support the GST, provided that fresh food was exempted.

  4. Can a company be malicious?
    They are certainly duplicitious, iniquitous, insidious, insensitive – though whether insensate despite/because the ‘human’ element is moot – but malicious?
    Tax evasion is self interest which has no interest in externalities except as raw material.
    As usual, the Wan Goose’s analysis seems accurate enough but he had his chance, he blew it and nobody listening to him is part of the clamorous future.

    (btw, not a fan of this format, it slows up my device and is very clunky)

    1. Strongly endorse AR’s comment re format.

    2. I think you forgot that Swan was part of a minority government. This rather limited his options with DR No and his swinish coterie opposite.

  5. THE LIBS CUT PENALTY RATES AND IMMEDIATELY SMALL BUSINESS SALES DECLINE, how stupid are these small business operators not to understand that cutting consumers discretionary disposable incomes will certainly mean an economic slowdown, the only benefactors from cutting incomes are the multi nationals who do not rely on domestic spending or produce the basic living necessities that cannot be avoided, people simply stop going to the movies, service their own cars, take a cut lunch and stop going for coffee when the discretionary spending part of their income is reduced, this is a recipe for recession.

  6. So much for the Libs being good economic managers. More like a bunch of grey haired old hacks who’ve run out of ideas. The introduction of corporate tax cuts and support for Adani and a coal based power station will lead directly to their demise at the next elections.
    I can only hope Labor will have a plan in place and hit the road running when the time comes.

    1. Q ” The introduction of corporate tax cuts and support for Adani and a coal-based power station will lead directly to their demise at the next elections.” A good result but the economic and environmental pain will take a generation to rectify.

      1. A good start would be to immediately identify suitable pumped hydro sites and start developing them (I read the ANU has a list of thousands of potential sites). Longer lasting and better value in the long run than batteries.
        Elevated lakes can double as local amenities for swimming, boating and tourism. For gods sake, someone in Canberra use some imagination!

        1. Lakes Torrens, Gairdiner and Macfarlane would be a good start for SA.

          1. AR, those Lakes are mostly dry salt pans at shallow elevations. Useless for pumped hydro, unless they are the receptacles for water flowing down hill from somewhere else. To invoke a cliché, in the driest State in the driest continent, I don’t see how you could make it work.

  7. Cool story, bro.

    Would have been a great one to hear when you actually had power to wield.

  8. WSwan was a FedTreasurer!
    Allowing a tax deduction for capex can obviously result in losses, in which case tax would be nil in that year.
    Elementary, but don’t spoil a good sensationalist story. Embarrassing!

  9. Australia should not follow anything those idiots do. The USa is a fool of a place to my way of thinking.

  10. Oz following Trump’s tale – if only wishing could make things be so?
    But to be fair, the BCA has sunk a lot of funds into the Limited News Party – they have a right to expect a return on that investment : and screw the rest of us.
    ….. Good thing their not “foreign interests trying to influence Oz politics”?

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