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The Forum > Article Comments > The impossiblities of democracy > Comments

The impossiblities of democracy : Comments

By Peter Bowden, published 10/9/2018

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.

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Tax cuts; spending. How about stopping borrowing and paying down the half-trillion dollar debt. This debt will be the first handed down to an incoming Labor government next year. Labor is used to having a Coalition surplus to squander before it starts its own borrowing. We have some really bad times coming.
Posted by ttbn, Monday, 10 September 2018 11:34:01 AM
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"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."

No, it's a VERY EASY decision for the ordinary voter to make. Because despite rightwing think tanks and the Libs trying to spin corporate tax cuts as THE way to get businesses to invest more in Australia, in reality it's just one of many ways to do that, and is very expensive. It's still a worthwhile objective, but it doesn't deserve to be in the top hundred economic priorities for the government.

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ttbn,
What you're advocating involves the government taking more money out of the economy than it puts in. That's a good strategy when business is booming (because it reduces inflation without the need to raise interest rates) but in the current economic climate, attempting it would be deeply counterproductive - businesses would have less opportunity to make money, so would invest less and lay off staff. Australia would plunge into recession, and the loss of taxation revenue would leave the government in an even worse budgetary position.
Posted by Aidan, Monday, 10 September 2018 1:22:30 PM
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talking with a tourist yesterday, we were discussing the ineptitude of academics in things economical.
He told me that to establish an academic in small business you give him a big business & then wait a while.
Posted by individual, Monday, 10 September 2018 7:51:29 PM
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The author, the ALP and others opposing company tax cuts obviously have the simplistic notion - which is often false that revenue the government would receive from taxing a particular activity is something like directly proportional to the tax rate imposed Is important to realise if the aim is to maximise government revenue from it, careful consideration of the most appropriate rate is necessary.

An important economic principle can be illustrated by a graph with tax percentage on an item on the horizontal axis and government revenue on the vertical axis. On it assuming the simplistic false notion that revenue is in direct proportion to the tax rate, the graph would be a straight line. In fact, it would start this way while rates are low. eg Maybe with tax rate increasing from 1 to 2 percent, 2 to 4 percent and 4 to 8 percent, revenue would double each time and the graph line would be close to straight. But then double the rate again from 8 to 16 percent, 16 to 32 percent and 32 to 64 percent, the graph would be more like a semi circle. The point at top of this illustrates the maximum revenue and rate at which it is achieved. Initially revenue would increase at diminishing rates compared with tax percentage and them decrease at increased rates. The government taking too much would discourage activity. Also make possible tax dodging schemes more worthwhile.

Is important when trying to obtain maximum revenue, the tax rate should be below that at the point of the top of the revenue semicircle graph. If above it, which is possibly currently happening with big companies, a tax rate drop should result in more rather than less revenue. One possible reason with multinational companies is that some internal figures can be juggled so tax is paid largely in countries with lower tax rates. If this applies, a reduced rate should result in more company profits being declared in Australia and less overseas. May then result in Australian government receiving more revenue for programs rather than less with lower tax rates.
Posted by mox, Monday, 10 September 2018 10:49:09 PM
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mox,
What you think is obvious is actually completely wrong.

Those who oppose these tax cuts are well aware that tax revenue is less than directly proportional to tax rate. And many of them know the situation you're describing is known as the Laffer Curve - named after a Reagan staffer. I used to think Laffer was an eminent economist until I saw him on Lateline and realised he's just an idiot whose ideas caught on. He blindly advocates cutting taxes without realising where the peak of the Laffer Curve is - and it's a long way to the right of our current tax rates. Even in the 1980s the Reagan tax cuts which made Laffer famous didn't actually result in more revenue.

Treasury modelling has shown that cutting our corporate tax rate will result in LESS revenue. Try looking at overall effects instead of slavishly following an economic hypothesis which has never actually worked.
Posted by Aidan, Monday, 10 September 2018 11:38:20 PM
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To Aiden especially: Of course initially the cut in corporate tax rates will result in a short term largely directly proportional drop in revenue from it. Re longer term, need to consider carefully the influence of various factors. Sometimes difficult to get this right so models prove wrong. Remember one factor is more company tax on multinationals likely to be paid in Australia rather than overseas if lower tax rate. Also, even if revenue from company tax is lower, the government may pick up more revenue further down the line if companies invest the tax saved into more productive activity. Then if they employ more people, the government may more than recover the revenue lost from less company tax in more income and other taxes collected.
Posted by mox, Tuesday, 11 September 2018 10:02:03 AM
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