Company tax cuts: Report shows lack of evidence of ‘Growth Dividend’

by David Richardson

International and Australian data on tax rates and macroeconomic indicators provides no evidence of link between corporate tax cuts and a ‘growth dividend’.

Despite widespread acceptance of the argument that cutting the corporate tax rate will boost economic growth, the economic evidence is not there according to a new report from David Richardson, Senior Research Fellow at The Australia Institute.

— Download full report below —

The report analyses data from Australia and OECD countries and finds no support for claims that reduced company tax leads to improved economic performance. Specifically it shows that:

  • There is no correlation between corporate tax rates and economic growth in OECD countries.
  • Countries with lower company tax rates have lower standards of living, measured as purchasing power of GDP per capita.

“Claims are often made that uncompetitive rates of corporate and individual income tax are a recipe for lower economic growth and lower incomes, but these claims rely on assertions, rather than data and analysis,” Ben Oquist, Executive Director of The Australia Institute, said.

“The economic case for company tax cuts is weak, and furthermore, it is obvious that many companies are involved in widespread tax avoidance and the federal budget has a revenue problem. It is simply not the time for tax cuts.”

The report also reviewed the claim that corporate tax cuts will lead to higher wages, more jobs and more foreign investment. Australia’s historical data shows:

  • Wages and mixed income has declined as a share of GDP as corporate taxes have been lowered.
  • Average unemployment rates have risen as company tax rates have lowered.
  • Growth in foreign investment as a share of GDP was strongest when Australia’s company taxes were highest. 

Polling conducted in blue-ribbon Coalition seats of New England, Dickson and Page revealed more support for an increase than a cut to the company tax rate – while the majority of respondents said it should stay the same.

“There is very low public support for cutting the company tax rate, and this new research shows that voters are right to be sceptical about claims that cuts will trickle-down into tangible benefits for the wider economy,” Mr Oquist said.

Full report