Cut the Company Tax Rate – Why Would You?

There have been a lot of big claims made about cutting company tax cuts.

The Australia Institute has looked at the evidence and our research suggests that the ‘jobs and growth’ claim doesn’t stack up. What is clear is that cutting the company tax rate will put a very big, permanent and growing hole in the nation’s budget bottom line. This policy will cost Australia billions, that is certain, and where that money will end up – or who wins? We summarised our research in this short TV commercial:

If you’d like to see this video get a big run on television, consider making a contribution.

All funds raised will go towards putting this research to the Australian public. The Business Council of Australia has begun running television commercials in support of the company tax rate – but rather than make the case, with evidence, their ads instead claim that there is a ‘war on business’. We think the evidence matters in a debate, and we think it’s important to counter the claims being made by lobbyists on behalf big corporations, especially.

The research that this video is based on can be found in the following reports published by The Australia Institute:

The big 4 banks would get $7.4 Billion over 10 years

Report: Big 4 banks $7.4 billion budget gift

Summary: A review of full year annual reports for the big four banks was projected forward to 2026-27 to give the no change scenario. Assuming that bank profits continued to increase in line with nominal GDP. In that scenario there would be a $7.4 billion benefit to the ANZ, NAB, CBA and Westpac through the implementation of the Coalition’s company tax cuts policy. The benefit to the banks would then be expected to grow in perpituity.

A third would go to the 15 most profitable companies

Report: Cutting the company tax rate: Why would you?

Summary: This report looked at the rates of company tax currently paid showing that one-third of the financial benefit of a cut of the company tax rate from 30 to 25 per cent would go to just 15 companies. This report also reviewed the evidence and experience of cutting tax rates to highly profitable companies, finding that it did not ‘trickle-down’ into ‘jobs or growth’ as claimed, but rather drives greater inequality as well as government deficits.

Our loss would be America’s gain

Report: Company tax cut a gift to US Internal Revenue Service

Summary: Australia and USA have a foreign tax treaty, which is in place so that companies who operate in both countries aren’t double-taxed on their profits. That means when a US company earns profit in Australia and pays the 30% tax rate, they owe only the remaining 5% in the US. However, if Australia’s tax rate drops to 25%, the remainder paid in the US is 10%. So companies pay the same, Australia gets less revenue and the only beneficiary is the US Treasury.

1% growth – in 20 years

Report: Treasury Working Paper

Summary: The growth figure of 1% is the total growth estimate for the 10 year implementation period plus the first 10 years of operations. It’s drawn from the Treasury assessment produced at the request of the Government. Table 1 p. 28 gives the modelled change which can be expected to be ‘largely completed in 20 years’. The three scenarios offered 1.1, 1.0 and 1.2 percent estimates.

BONUS: Something we couldn’t fit in the ad

Report: Hole in Company Tax Cut modelling exposed

Summary: New research by The Australia Institute uncovered that the Treasury commissioned modelling attributes a $3.9B gain in government revenue to multinationals suddenly and voluntarily deciding to pay more tax because the company tax rate drops 5 percentage points. This assumption has no basis. 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.

Related research

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