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The impossiblities of democracy

By Peter Bowden - posted Monday, 10 September 2018

The Coalition government's current proposal to slash Australia's corporate tax rate from 30 per cent to 25 per cent is directly opposed to the Labor party's call for funding for schools and hospitals. It is an impossible decision for the ordinary voter to make. Even the well-informed voter would have difficulty in making the best decision. The government's position is lifted straight out of the review by Treasury Secretary Ken Henry, released in May 2010, on Australian taxes. 'Economic theory and growing empirical evidence support a shift away from company income tax towards taxes on less mobile factors as a means of increasing investment, GDP and growth.' he stated

But Jessica Irvine in the Sydney Morning Herald writes (23 February 2018) that Ken Henry's position was somewhat qualified . And made almost a decade ago. The coalition has also not accepted all Henry's proposals, the biggest rejection being that revenue gains be made through a mining tax.

By Treasury's reckoning, the proposed reduction in the company tax rate would boost economic growth by about 1 per cent in the long term. But Treasury, as a major part of the public service, is there to support the government in power. They are not there to state that the government is wrong.


The opposition's cry for investments in 'health and education programs not banks', was a winner at the recent super Saturday series of by-elections. In fact, that cry will dominate any coming election. The call on whether to cut corporate taxes, versus spending our tax dollar on schools and hospitals is an issue of importance to all of us. Yet we have no ability to decide on this issue.

Last December US President Donald Trump legislated to reduce the US statutory corporate rate to a flat 21 per cent. Australian companies pay 30%. But this is not a clear issue. The tax companies pay in Australia is already reduced by a wide range of deductions, including depreciation, along with research and development offsets, dividend imputation and the ability to carry forward losses. Meanwhile, companies investing in the US face state taxes and the costs of providing private health insurance for employees.

Economists are split. Reserve Bank board member now Lowy Institute member, John Edwards, believes Australia is still an attractive investment destination. An independent economist, Saul Eslake, is also a sceptic on reducing the corporate tax rate. Canada and the UK have cut taxes, he argues, but wages growth and investments have slowed. Also the International Monetary Fund recently revised its forecasts for the US economy based on the Trump tax cuts, and actually reduced expected growth because the lower corporate tax take would have to be offset by higher taxes elsewhere.

Professor of economics at Monash University, Stephen King is also cautious about Australia joining the race to cut corporate taxes. He likens it to a global trade war, where countries impose tariffs on imported goods to protect domestic workers.

Robert Carling of the Centre for Independent Studies. a right wing think tank , thinks the opposite: In Company tax is more than a political football 'he asserts - that far from being unable to afford a cut in its company tax rate, Australia cannot afford not to. He goes onto state that 'Company tax has become a political football; with the focus no longer on the economic case for a cut, but on the game of scoring points for the next federal election'. He is correct, but then goes on himself to scoring a point or two, arguing that we cannot afford not to lower the company tax rate:

a dividend imputation system does not change that reality. Nor does the nauseating repetition of slogans pitting funding for schools and hospitals against tax cuts for banks.


So where does that leave us ordinary citizens? I for one am going to vote for schools and hospitals, against tax cuts for the big end of town. I am also distrustful of recommendations that support business over people. Most Australians would go along with this decision. But is that the best decision for Australia? It is an impossible decision for us ordinary Australians to make Cannot our government with its resources, or some public minded philanthropist, hire some good independent economists, not public servants from Treasury, to model two or three tax options, and assumed investment levels, to give us better guidelines than we have now?

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About the Author

Peter Bowden is an author, researcher and ethicist. He was formerly Coordinator of the MBA Program at Monash University and Professor of Administrative Studies at Manchester University. He is currently a member of the Australian Business Ethics Network , working on business, institutional, and personal ethics.

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