New research from Canberra based think tank The Australia Institute has exposed a serious funding hole in the Government’s company tax cut modelling.

“Our research has uncovered that the Treasury commissioned modelling finds a $3.9B gain in government revenue because multinationals suddenly and voluntarily begin to pay more tax because the company tax rate drops 5 percentage points.  It is preposterous,” Chief Economist of The Australia Institute, Richard Denniss said.

“The economic modelling commissioned by Treasury and released on budget night estimates that 55 per cent of the $8.2 billion per year cost of the tax cuts could be ‘self-funded’.  However almost all of this ‘self-funding’ flows from the assumption that multinational tax minimisation will dramatically drop because the company tax rate is cut by a sixth from 30 per cent to 25 per cent

“If this assumption does not materialise, the revenue would have to be found from increased taxes.

“Despite its $48 billion cost, there has been no cost benefit analysis of the company tax cuts. What modelling exists shows that the tax cuts will  cost billions in lost revenue up front and then deliver tiny benefits are decades away. If this was a freeway it would never be built.

“The economic case for large company tax cuts has already proven to be poor, with supposed growth dividends within the margin of error and between 10 and 30 years away.  The big banks would secure a multi-billion windfall and that the USA IRS would benefit at the expense of the Australian ATO.  Now we know that key assumptions to boost the revenue case for the tax cut are completely flawed

“The Prime Minister and Treasurer need to clarify if they believe that cutting the company tax rate will lead multinational companies to voluntarily start paying additional tax in Australia, or if they plan to fund the company tax cuts through spending cuts and personal income tax increases,” Dr Denniss said.