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'Benefits to foreigners' are just one problem with Australia's muddled debate on company tax

By Michael Potter - posted Friday, 12 August 2016


What do we want? Better evidence for government policies! When do we want it? Now!

We will be waiting a long while for this protest to march down the city streets. The barricades aren’t being set up in a demand for more evidence, but the public deserves to see valid policy research that stops politicians and lobby groups from simply getting away with bald assertions. However, some ‘evidence’ presented about the proposed company tax cut has actually muddied the debate rather than clarifying it.

Everyone agreed the tax cut would provide a short-term benefit to foreign investors. But the Coalition and business groups presented this as a strong argument in favour of the tax cut, while the ALP and left-leaning lobby groups said it was an argument against the tax cut. The worst analysis opposing the tax cut basically assumed that any money going to a foreigner was bad, even if Australians benefited in net terms.

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The absurd argument was that Australia should forego an increase in wages, investment, incomes, employment and economic growth just because some foreigners might receive a benefit.

One argument was that the US Government garnered a huge benefit from the Australian tax cut — although this is easy to refute.

But, regardless of which foreigners benefit, the broader point remains: why should a policy providing substantial benefits to Australia be dismissed because the benefit goes partly to Australians and partly to foreigners?

If we oppose policies because they benefit foreigners, why do we implement any policy that benefits any foreigner? For example, why do we provide foreign aid, particularly if there are problems with this aid?

The debate over this issue also missed a critical argument, outlined by the Treasury: in the long term, foreign investors won’t receive any benefit at all and all the benefits will be captured by Australia. The whole anti-foreigner argument is a house of cards, yet was the centrepiece of many arguments against the tax cut.

The oddness doesn’t end there. The Coalition is substantially tightening foreign investment restrictions, while proposing the company tax cut in which the main benefit relies on increased foreign investment. The contradiction in these two positions should be obvious. The tighter rules for farmland will dissuade all foreign investment, regardless of what the Coalition argues, and the Productivity Commission considers the restrictions aren’t well grounded in fact.

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The ALP’s contradictions are similarly confounding. They oppose the Coalition’s tightening of the rules for farmland, arguing foreign investment is vital; but at the same time denounce the alleged benefit to foreigners from the company tax cut. It seems foreign investors are fantastic and terrible at the same time. Go figure.

And as we know, there is more absurdity: the ALP previously proposed a company tax cut, arguing it was good for wages, employment and growth — but now opposes it, forgetting its previous arguments.

The debate over the actual benefits of the company tax cut wasn’t much better. The best evidence is contained in leading economic journals, but much of what was presented in the media was ‘back of the envelope’ calculations that were of less value than the used mail packets they were scribbled on. We were told there was no correlation between company tax rates and economic growth, or there were particular countries where economic growth didn’t pick up after taxes were cut.

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This article was first published on Business Insider.



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About the Author

Michael Potter is an economist and public policy commentator and authored the papers Fix it or Fail: Why we must cut company tax now and The looming crisis in business investment for the Centre for Independent Studies.

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