Graham, decreasing corporate taxation because of the current "surplus", as you have suggested, is, in my opinion, a radical and terribly shortsighted attempt at a solution for a problem that doesn't exist in Australia in the first place. To me it sounds like mere ideological game playing.

Most corporations in Australia have, over the past 20 years or so, streamlined their operations in order to get amazing productivity. We are one of the most efficient countries in the world. Can things be improved? Of course, but a major overhaul (meaning major reduction) of corporate tax liability, because we have a "current" surplus is crazy in my opinion. It's corporate "welfare" on a major scale. All companies and all able individuals should stand on their own two feet in life.......the government should basically butt out as much as possible.

I wasn't suggesting doing it because of the surpluses, just that with the surpluses you could afford to do it now. There are a limited number of good reasons for governments to run surpluses, and none of them apply at the moment, so why not utilise the surpluses.

I think you're also a little confused about productivity. In one sense it is about how many widgets per person you can produce, and giving companies more money to spend on investing in doing that is a good idea, if that is what they do.

I guess the underlying issue is who is likely to produce more wealth per a given unit of taxpayer dollars - public servants investing the money in bonds, or capitalists, investing the money directly into productive assets. I think the latter has an edge, although not as big as some think.

Any business consultant worth their salt can provide examples of how multinationals reduce their tax since the 1950s.

Joseph Lucas Australia used to import sealed beam headlamps from Canada. The headlamps would have been sold cheaply by the Canadian subsidy to the Hong Kong subsidiary where the tax rate was 15%. The Hong Kong subsidiary would sell the headlamps to the Australian subsidiary at a high price. The product would travel straight across the Pacific from Vancouver to Melbourne. In its first 20 years of existence the Australian subsidiary made a profit once, that must have been a book keeping error. In reality, the owners of the company in the UK still collected their dividends. A casual review of Australian operations showed that the operation was not run efficiently but run to maximise the tax effectiveness.

Alcoa sell their aluminium to a holding company in a low tax country. The holding company onsells the product to the consumer.

I do not see the relationship between lowering tax and increasing productivity. When New Zealand wagesdropped their productivity dropped in relation to Australia as the incentive to be efficient had disappeared.

You could make the same argument for people. With less taxes they are happier and drive the economy through additional purchases. I know where this argument is coming from and I am suspicious of it's bias.

Billie “Joseph Lucas Australia”

Australian Customs & Excise have, for many years, exercised controls over the arrangements which you refer to. I recall being advised by a tariffs expert back in the mid 1980s about the C&E policing on the illegal use of cross border costing differentials but don’t let that get in the way of your delusions

As for the era when a lot of those companies set up, the mid 1950-1960’s the commercial arrangements were designed to facilitate a protectionist attitude to trade and the development of local manufacture regardless of the cost.

My personal view to all that is governments spending tax payers money on favouring certain local manufacturers through prohibitive tariffs do not serve their electorate at all well, merely substituting the electorates own free choice with a government decreed and limited choice based around sub-economic local market production (often using second hand, recycled equipment) at significantly higher costs than those which would have been experienced through best practice and economies of scale.

Better we have smaller government and fewer bureaucrats to play Lady Bountiful and leave the reward with those who take the risks to create the wealth in the first place and as GY observes, when it comes to

“public servants investing the money in bonds, or capitalists, investing the money directly into productive assets.”

The latter do have the edge.

Graham regarding “I think the latter has an edge, although not as big as some think.”

I think the “incentive” of more retained reward for risk is where the benefit lies, than in the monetary value itself (or comparison to what some government bureaucrat might do)

Bearing in mind the nature of franked dividend imputation, ultimately if companies did not pay tax, dividends paid would not receive an imputation credit, so all would remain equal, except a loss of immediate taxable income for that element of profit retained to grow the business, which would be an reasonably healthy outcome.

Billie, there is a complex transfer-pricing taxation regime in place to help reduce the practice that you are referring to with low-tax destinations. I dont know it well, just that it operates to deem profits/sle prices where they have been artificially constructed for tax avoidance.

Col, thinking through your analysis of the imputation system, I am inclined to agree, however stand by my comments that all businesses should have a mechanism to trap profits at a non-taxable level where they are to held for use within the business, rather than paid out to the owners.

Whilst I agree that there is no point propping-up inefficient local businesses, I do think that there is a need to do a proper evaluation of the reason why a foreign product is cheaper, before deciding not to support a local producer. Differences come down to labour laws (OHS, pay, conditions etc), treatment of the environment etc. If we decide that Australian workers deserve certain conditions (eg a reasonable pay and be able to expect not to die on the job), then we shouldnt then do thse workers out of a job by expecting some poor labourer ina third-world country to take less than those same conditions. Short-term it has supported the growth in our standard of living, but long-term its a false economy, as well as being morally unjust. I believe that there is a role for tariffs etc to play in providing a true level-playing field.