The case for company tax cut might make sense if around 95 % of corporate Australia hadn't offshored their operations.(John Howard and his take on tax reform, at the time he introduced his GST)

This feature and the double tax act of 1953 could simply mean we'd just be transferring scarce tax dollars to foreign Tax Offices. We'd be much worse of with comparatively less revenue And the companies wouldn't get any real tax relief.

If it was only applicable to Australian companies still headquartered here, it might make some sense as would outlawing other regressive taxes, like payroll tax and the ubiquitous and cascading GST?

Everybody know we need tax relief and or tax reform and watch in wonder as squirming officialdom adroitly avoids doing anything real about either!?

I've read various economists who seem to agree we could raise as much revenue via a transaction tax of just 2,5%?

But that's is as always just dismissed by the tax experts it would render redundant! Ditto a stand alone unavoidable 5% expenditure tax which would raise more revenue and rejected for the same self serving reasons!?

Other just reject out of hand any such idea, and without trial; and reminiscent of flat earthers who knew the world was as flat as a pancake! Muttering regressive, how could such a small figure raise enough money? Even if applied to all expenditure, inclusive of all bank transfers and overseas remittances!

Which would really put the cat amongst the pigeons with the avoidance industry! And given who benefits bound to be rejected on a veritable plethora of spurious excuses for rejection or more inaction!
Alan B.

Well without overstating the blindingly obvious, you'll never ever know if you never ever try!

The case for company tax cuts is clear, Australia with one of the highest company tax rates in the world needs people to invest, and given the high cost of doing business, investments go where the returns are.

The estimated returns for a $1 tax cut are $4 in local business with the commensurate tax revenue.

The case for company tax cuts is very weak. Our dividend imputation system means that most of the benefits would flow to foreign owners.

There would of course be a benefit to Australia: it would encourage investment in Australia. However it's an extremely expensive way of achieving that benefit. The government can achieve similar (and sometimes better) results at a far lower cost by:

• Investing in better infrastructure
• Investing in better education
• Investing in science
ª Keeping interest rates low
• Stimulus spending when needed to maintain domestic demand.

Numerically, the vast majority of businesses in Australia are small businesses.

And the vast majority of small businesses are not incorporated.

Thus, they derive no benefit at all from company tax cuts.

The best way to assist small businesses to grow and prosper would be to reduce the crushing burden of compliance costs - particularly in terms of the soul destroying form filling and reporting for reporting's sake, just because some public servant thinks it would be nice to have a lot more information, even if nothing productive is ever done with it.

Aidan,

What a lot of twaddle.

Firstly most businesses that benefit from the tax cut are the 400 000 small businesses who are not sending dividends overseas,

Secondly even the large corporates do not send most of their dividends overseas, and what they do send is largely balanced by Aus companies based overseas repatriating dividends.

Finally, even if an investor owned a company 100% and repatriated the dividends, people would be employed and pay tax.

So Aidan's solution is:
SPEND on infrastructure;
SPEND on education, despite the correlation between increased spend and reduced educational achievement;
SPEND on stimulus projects - like the pink batts program, for example;
and keep interest rates low, so that self-funded retirees can never be quite sure whether they'll outlive their money.

Aidan, the problem is we've done way too much spending since KRudd appeared on the scene. Weasel words like "invest" don't fool anyone any more.

Better to reduce spending and reduce taxing, so that businesses, particularly small businesses which employ most of the workforce, can grow and employ more people.

Well we can make a case for reduced spending and doable without shutting down the economy by simply eliminating welfare for the rich, which simply has to include family home worth more than $500,000.00? I have lost count of how many have blown the super on a mcmansion and a dozen or more cruises and just to reduce their private means to enable them to collect a pension and free health care etc!

Even then some seem to have the means to force feed the favorite one armed bandit? A few seem to have quite lucrative cash businesses, or own offshore holiday homes which collect rent and pay for almost nonstop cruising?

[Welfare could be more generous if it was limited to just the needy not the greedy! And as an increase in the hands of those who through no fault of theirs are reliant on the public purse?] And don't tell me the ATO are on top of it, cause if they were it would be happening! [No names no pack drill.] And the pubs and clubs that depend on this cash would have to look elsewhere, say in the provision of low cost rental property?

Which would allow us to ameliorate poverty, particularly in post code poverty traps, (gonski, the NDIS) which given subsequent unavoidable increased spending, would allow dependant rural and regional economies to grow and prosper!

Which in turn would flow on up and percolate through the wider economy, and grow a snowballing bigger pie!

Trickle down economic theory isn't working and has never worked, unless you want to include the Great Depression and the following Great recession as classic examples of this fundamentally flawed economic rationales effect.
Alan B.

Shadow,

Try thinking about things a bit more before you dismiss them as twaddle.

"Firstly most businesses that benefit from the tax cut are the 400 000 small businesses who are not sending dividends overseas,"
As calwest pointed out, most of the small businesses are unincorporated so would derive no benefit.

Also, small businesses are generally not very lucrative, so even if they make up most of the beneficiaries they wouldn't benefit most in dollar terms.

AIUI most small businesses have some debt, so many would find an interest rate cut preferable to a tax cut.

"Secondly even the large corporates do not send most of their dividends overseas, and what they do send is largely balanced by Aus companies based overseas repatriating dividends. Finally, even if an investor owned a company 100% and repatriated the dividends, people would be employed and pay tax."
You miss the point. I'm not criticising foreign ownership; indeed I think the current restrictions on that are too tough. But Australia cutting company tax will result in more money going overseas in dividends, yet will not give a corresponding increase to dividends coming into Australia from overseas.

___________________________________________________________________________________

calwest,

I agree that reducing compliance costs is very important for small businesses.

But I very strongly disagree with your claim that the problem is too much spending. If the problem were too much spending, inflation would be a lot higher. Recently our problem has been too little spending.

What do you have against spending on things that will make our economy more competitive?

Look, I don't know anything about economy and I don't give a hoot about economy: all I know is that it is not fair for one person to pay more tax than another just because the other guy hired an accountant to arrange their tax affairs as a "company" (or "partnership" or "trust" or any other dirty trick).

There should be one flat tax-rate for all: this alone will eliminate most red-tape as well as tax-loopholes. If during a financial year you earned X dollars and expended/invested* Y dollars, then you should pay R*(X-Y) dollars in tax, regardless how you call yourself.

Lots of bludger accountants will then join the dole queue (which thankfully has a means-test) :)

And if the multi-nationals don't like it - then good riddance!


* "investment" in this case is defined as anything real that was purchased because it is reasonably needed for production.

Garbage, as usual, from you, Aidan.

If spending was the panacea you claim, we'd already be rolling in riches from the massive over-spending of KRudd and Dullard.

We're not. So that's the end of the logic train for you.

You and the rest of the Leftist clowns never tire of spending other people's money. Just bugger off and leave people to make their own decisions on how they spend the money they earn through their own hard work.

Try to remember this: it's not your money. Keep your grubby little hands off it.

Yuyutsu,

"Look, I don't know anything about economy and I don't give a hoot about economy".

Good, admitting your ignorance is a start. Your simple-minded view of how taxation works is not worth bothering about. Now move on.

Dear Calwest,

[[[
Numerically, the vast majority of businesses in Australia are small businesses.

And the vast majority of small businesses are not incorporated.

Thus, they derive no benefit at all from company tax cuts.

The best way to assist small businesses to grow and prosper would be to reduce the crushing burden of compliance costs - particularly in terms of the soul destroying form filling and reporting for reporting's sake, just because some public servant thinks it would be nice to have a lot more information, even if nothing productive is ever done with it.
]]]

Guess who wrote this?

Whoever did, I agree with every word!
And what I wrote was simply an implementation of the same.

Yes I am simple and I believe in simplicity... and honesty. I dislike scheming.

calwest, I'm not claiming spending to be a panacea. It doesn't intrinsically do much to make the nation competitive (though some of the things the money's spent on do that).

Spending does solve the problem of the lack of business opportunities resulting from a lack of spending.

Rudd's spending kept us out of recession in the GFC. Those who want to credit China for that forget that the surge in Chinese demand for our minerals came a year later.

The RBA then sabotaged recovery by raising interest rates too soon, reducing private spending and business investment. And since then the governments have cut spending in a futile attempt to rush to surplus. But even if it were possible to run a surplus at the moment, there's no reason to.

My logic train can go a lot further than yours, as I can see past the false assumptions that you make.

Cutting taxes would, to some extent, be functionally equivalent to increasing spending. But a tax cut instead of a spending increase would mean that the nation would fail to gain the benefit of what the money would be spent on. And the benefits of a tax cut would flow more to those who are already rich and less to those who actually need it.

Aidan,

Grossly excessive spending did not keep us out of recession. That's just propaganda. The money's all gone now and what do we have to show for KRudd's historically hysterical extravagance?

Please give us some detail. How did the pink batts scheme deliver a nett benefit to the Australian economy? The over-priced school buildings? The now abandoned computers for schools? The NBN? The $900 cheques to the dead and to foreign backpackers already returned home? I'm prepared to concede that the $900 cheques had some economic good, but mainly to the benefit of television manufacturers in China.

But don't let me limit you, go ahead and make up your own list.

In what way did Australia "gain the benefit of what the money...[was]...spent on"?

Is there any level of spending which you would think would be prohibitive? Or does the world just keep getting better so long as people like you and your Lefty mates keep squandering other people's money?

As Margaret Thatcher said, sooner or later you run out of other people's money.

BTW, I'm sure the RBA will be crushed to hear that you disagreed with their interest rate strategy.

Yuyutsu,

I'm not sure how you can come to the conclusion that the establishment of a company, partnership or trust is equivalent to a "dirty trick". These are all legal and appropriate forms of business entity, depending on the circumstances.

In the same context, why do you smear accountants as "bludgers"? They are professionals who make an honest living by ensuring that their clients comply with the law. Otherwise, they lose their registration.

You may wish the taxation scheme to be any way you want, flat or otherwise, but, back here in the real world, people simply have to comply with the existing legal requirements.

You say, "Look, I don't know anything about economy and I don't give a hoot about economy."

OK, best to leave it to those who do. But please, let's not pretend that what you have written was merely "supporting" my comments. You're on a different track altogether.

When I went out to work in 1968 as a first year apprentice, company tax was 60%. today its 30% and falling.

Its about time somebody put the question to these people? What rate of tax would corporate Australia regard as fair rate of tax for business to pay and would they be prepared to give long term commitments to voluntary pay such a rate?

I am sick to death of the corporate world whinging like a dole bludger that their rate of tax is too much. How little must it be before its low enough?

On top of that they, demand and get, corporate welfare handouts left right and centre.

3-4 billion of tax payers money is going into building a football stadium on Packer family owned casino land in Perth. If that is not corporate welfare what is?

How much taxpayers money gets given to GMH, Ford and Toyota every coupla years?

How much corporate welfare did we hand out to the banks in 2008-10?

Refdrivsoc,

You may not have noticed, but Australian government handouts to the car companies ended under Tony Abbott's prime ministership, much to his credit.

Labor, on the other hand, was the car manufacturers' bottomless pit...well, no, they actually saw taxpayers in that role.

While one might sympathise with your objection to taxpayers' funding for some (private) developments, they do, at least, generate jobs and tax revenues.

Aidan, Calwest,

While it is true that only 1/3 of small businesses are incorporated, these are typically the larger and most profitable, and employing the most. The reasons for this are simple, being incorporated costs money to establish and to comply, and for people starting a business there is seldom justification. Similarly about 16% are partnerships, which exist for other legal reasons.

So the cut in small business tax will affect the majority of employees and turnover within small business and will encourage further investment, and employment.

Hi Shadow Minister,

Yes, agree. As I said in my first post on this topic:
"Numerically, the vast majority of businesses in Australia are small businesses." Numerically, but not necessarily in terms of turnover.

Some of the larger small businesses you mention are quite large and taken as a group include many businesses with multiple sites. Many, for example, are in the retail liquor and grocery sectors. They are, of course, still tiny when compared with Woolworths and/or Coles.

Coincidentally, on the subject of spending/not spending, the PEFO says this (via David Uren, The Australian):

"Treasury secretary John ­Fraser and Finance Department secretary Jane Halton used their Pre-election Economic and Fiscal Outlook (PEFO), which is an independent review of the budget required by law before an election, to call for greater commitment to controlling the growth of government spending…

“Without considerable effort to reduce spending growth, it will not be possible to run underlying cash surpluses, say in the order of 1 per cent of GDP,” they said

Cal,

If one cuts tax, there will be more business investment, more jobs, less unemployment, and more tax revenue. the reason that just about every OECD country has cut company tax rates is to boost growth, not because they want to throw money around.

The wealth that governments tax to provide services come from business and employees' income tax and punishing businesses results in less revenue.

The definition of small business largely depends on who you talk to:

For example, ASIC regulates many businesses that are 'small proprietary companies', which means a company with two out of these three characteristics, an annual revenue of less than $25 million, fewer than 50 employees at the end of the financial year, and, consolidated gross assets of less than $12.5 million at the end of the financial year.

The Australian Taxation Office defines a small business as one that has annual revenue turnover (excluding GST) of less than $2 million. Fair Work Australia defines a small business as one that has less than 15 employees.

Despite these differences, many regulators have informally adopted the definition of ‘small business’ used by the Australian Bureau of Statistics (ABS), which is a business that employs fewer than 20 people.

Hi Shadow Minister,

Don't disagree with anything you've written.

I have no problem at all with corporate tax cuts; they will help stimulate business growth.

My original point, though, was that the benefits of corporate tax cuts will not flow through to the majority of small businesses.

Define small business any way you want and I'd suggest most of them are not earning anywhere near $2 million a year. The ABS definition (fewer than 20 employees) would capture the many, many small businesses which are single-person, or two-person operations - the so-called micro-businesses which bring in a few hundred dollars a month, virtually hobby businesses. And it would capture many other small businesses which employ a few people but still don't turn over $2 million a year.

I must say that I'm not sure how any government could stimulate such tiny businesses. They are so small that it would probably cost more to stimulate them than would be justified by any result.

Anyway, I think we are in total agreement on the main issues.

Cal,

The 33% that are incorporated make nearly all the company profit, employ most of the workers and are the most likely to invest.

The smallest 50% would more likely to invest with rapid depreciation.

Employment in both sectors would be boosted with the internship plan.

Secondly you are making the typical error that those with no formal accounting or economics frequently make. There is a huge difference between revenue and profit. A simple example, I buy $1m worth of goods repackage them and sell them for $2m. My revenue is $2m, but my profit after cost of goods, packaging costs and labour is probably closer to $200 000. Even then small businesses generally pay themselves the profit as a salary.

Calwest,

The Rudd government's spending kept us out of recession, but it was not grossly excessive. The money's not all gone (much of it was recouped through the tax system) and we have the things the money was spent on.

"How did the pink batts scheme deliver a nett benefit to the Australian economy?"
By reducing the amount of coal and gas the nation needs to consume.

"The over-priced school buildings?"
There's two issues here: the buildings and the prices. It's important to understand that they were not overpriced in the whole country. In WA they were excellent value, as the government thoroughly scrutinised all the contracts. They were quite good value in SA, Queensland and Tasmania. It's only in Victoria and NSW, where the state governments didn't have the capability to oversee the scheme themselves so contracted it out to the private sector, that the buildings were overpriced. There's an important lesson in this: we need capable government not minimal government.

As for the buildings, they reduced the constraints on the number of things the schools could do at once; this enabled them to function more effectively. And it's probably also meant that fewer school buildings have had to be constructed since the scheme ended than would otherwise have been needed.

"The NBN?"
Enables businesses to communicate much more efficiently: increasingly important in the era of Big Data. Also important for consumer services like TV, and great potential for future coordination of appliances to reduce energy bills. In its original form it's a great investment, and taking advantage of existing HFC also makes sense. But FTTN is an idiotic false economy. They fudged the value for money case for it by using a discount rate of 8% when the official interest rate was less than half that. Now it's less than a quarter of that but they're sticking with the dead end technology to retain the illusion that FTTP's a bad investment.

(tbc)

calwest (continued)
"Is there any level of spending which you would think would be prohibitive?"
I don't think there's an absolute limit, but there are some constraints:

Inflation is the first constraint. If too much money is going into the economy, it causes too much inflation. So if inflation gets too high, the government has several choices: put more money into the economy, take more money out of the economy (via taxation) or use interest rates to influence private spending and investment decisions. The fourth option is the generally inadvisable one of just putting up with inflation; technically a fifth option is microeconomic reform, but that's rarely fast enough to be used as a reactive measure. There are also a few options that should not normally even be considered as they're a bigger threat to the economy than the inflation itself. Those include foreign currency borrowing and price controls.

Interest rates are the second constraint. They're used to control inflation, but high interest rates increase the short term bias of business decisions. To enable businesses to make long term decisions to invest in the things that make them more productive, interest rates need to be low. Keeping interest rates ow means that in parts of the economic cycle, the government will probably need to run (and bank) surpluses. This does not depend on debt levels - it applies just as much if there is no debt at all.

Taxation is the third constraint. There are some situations where a tax cut would be better for the economy than a spending increase, particularly when taxes are high.

"As Margaret Thatcher said, sooner or later you run out of other people's money."
Government money is government money, not other people's money. The government may choose to return it to the people (or not take it in the first place) but doing so has economic consequences.

"BTW, I'm sure the RBA will be crushed to hear that you disagreed with their interest rate strategy."
Considering the damage they've done, that's what they deserve. But they really won't care.

I cant help but think about what Donald Trump recently said about the political class, and changing the argument to criticise bankers and economists.

"We can't fix the rigged system by relying on the very people who rigged it".

I think people who deal with financial matters are seriously over-rated bordering on incompetent.
I mean seriously, they deal in numbers, Add, Subtract, Multiply, Divide.
No matter what you punch in, there's only going to be one correct answer.
So how come they can never get it right; how come they don't see financial catastrophes coming and how come they can't build a foolproof system?
To me the system works about as well as it would if they'd just punched in random numbers, which makes them the weak link.

Governments don't create jobs, unless you count the increased jobs at Centrelink and Job Network providers.
Businesses create jobs, the only way government can help is to make businesses more profitable, and people more productive.

It seems as though companies will shop around for countries that offer the best deal, and if they aren't paying next to nothing they'll go elsewhere, and send the jobs elsewhere too.
They don't care how much the Australian worker has to pay in tax as long as they're profitable.
What they also don't realise is that if they ship all the jobs overseas then Australian workers wont have money to spend and all their businesses will fail.

But there's no big skull and crossbones saying we've gone bust.
With the Keynesian's thinking we can spend our way out of it, all we'll be doing in going further down the toilet with an economy 'driven by Centrelink and powered by government debt'.

And you can't sell the future labours of a nation to pay back a debt if there aren't any jobs.

We see a move to where companies pay nothing and workers pay everything.
In this climate we need the country as a whole to be more productive, businesses to be more profitable and we need to get people into jobs, and off welfare.

AC,

" think people who deal with financial matters are seriously over-rated bordering on incompetent. I mean seriously, they deal in numbers, Add, Subtract, Multiply, Divide. No matter what you punch in, there's only going to be one correct answer."

You seriously have no clue. There are so many variables and unknowns that not only do you need to know the maths, you need to know the markets.

Of course companies invest where they can make a profit. All companies are driven by investors such as pension funds etc that pull their money out of a company if it fails to make a profit. Do it several years in a row and the company dies.

Just spotted a rather silly mistake in what I've written above:

Where I said:
So if inflation gets too high, the government has several choices: put more money into the economy, take more money out of the economy (via taxation) or use interest rates to influence private spending and investment decisions...

What I meant was:
So if inflation gets too high, the government has several choices: put LESS money into the economy, take more money out of the economy (via taxation) or use interest rates to influence private spending and investment decisions....

From the context (and the lack of responses) I hope it was obvious that I thought one thing and wrote the opposite. But as there are some people here who think I believe silly things about economics, I thought I'd better not leave this uncorrected.